Why the decision matters: the difference between EOR and payroll

Employer of Record (EOR) services and payroll services are two approaches businesses can utilise to manage their workforce. They are key resources that can be used when looking to expand into a new market. 

What is an EOR? 

An EOR is a business that can take on the HR, payroll, and tax compliance responsibilities on behalf of another business, acting as the legal employer. To read even more about an EOR, click here. 

What are payroll services? 

Payroll services manage employee wages, tax withholdings, and labor law compliance. However, they do not act as the legal employer on behalf of another business. Below, you will find the key differences between the two, helping you understand their purpose and what might be most suitable for your business. 

The difference between EOR and payroll services 

Employment relationship 

EOR: Functions as the legal employer for a business’s employees. The EOR takes on all employment-related responsibilities, including hiring, onboarding, and termination. 

Payroll Services: The legal employer responsibility remains with the client company rather than the service provider. The payroll service providers only manage the payroll process, and they do not take on any employment responsibilities. 

Compliance and legal obligations 

EOR: ensures adherence to local labour laws, tax regulations, and employment standards. The EOR assumes liability for legal and regulatory compliance. 

Payroll Services: With just payroll services, the client company is responsible for ensuring compliance with all legal and regulatory requirements themselves. The payroll service provider can offer support and guidance but does not have legal liability. 

Benefits and HR management 

EOR: Manages the client company’s employee benefits, including health insurance, retirement plans, and other compensations and benefits. Also, they handle HR-related tasks, such as employee relations and performance management. 

Payroll Services: Typically, they focus on processing payroll and may offer limited HR support. When working with a payroll service provider, the client company is responsible for managing compensation, benefits, and HR functions. 

 
Geographic reach 

EOR: Useful for companies expanding into new countries or regions. An EOR has the local expertise needed to quickly establish a presence in a new market while aligning with local compliance needs. 

Payroll services: Operate within the client’s home country or existing markets. They are not able to provide the needed support for international expansion due to their operational limitations. 

Cost structure 

EOR: We will often charge a fee based on the total employee cost, including salary, benefits, taxes, and a service fee. The fee can even be more comprehensive, appearing higher due to the extensive services provided. 

Payroll services: Charge a fee per employee or per payroll cycle. The cost is typically lower than an EOR because the scope of services is narrower. 

Service scope 

EOR: Provides a broad array of employment services, including payroll, compliance, benefits administration, and HR support. 

Payroll Services: Focuses on payroll processing, tax filing, and possibly some basic HR functions like time tracking and attendance. A limited scope is provided. 

When to use each service 

EOR services: 

If you’re eyeing international growth or seeking to entrust your entire employment function to experts, EOR services are your ticket. Perfect for rapidly onboarding employees in new territories without the hassle of setting up a legal entity, EOR streamlines the process, letting you focus on your core business goals. 

Payroll services: 

For businesses already holding a legal entity but looking to refine their payroll operations, Payroll Services are a game-changer. Ideal for those craving efficiency in payroll management while retaining direct control over employment obligations, this service optimizes processes without the need to outsource broader employment functions. 

Expanding a business to the Netherlands? 

Whether you opt for EOR or payroll services depends on your strategic objectives. EOR steps in as the legal employer, managing a spectrum of employment activities, while payroll services hone in on precise and punctual payroll processing, keeping employment responsibilities within your purview. 

Both services share the common goal of simplifying workforce management, with differing scopes and focuses. It’s about finding the right fit for your unique business landscape and future aspirations. 

When you are ready to streamline your workforce management approach or tackle global expansion with confidence, understanding the nuances of EOR and payroll services can be the key to unlocking seamless operations and sustained growth. 

Expanding your horizons, empowering your workforce – it all begins with making informed decisions tailored to your business vision. Schedule a consultation with us today and take the first step toward full compliance with Dutch payroll and HR requirements.