What Is an Employer of Record? A Plain-English Guide for Australian Businesses

Most business owners come across the term ’employer of record’ one of two ways.

Either they’ve been speaking with someone who mentioned it in passing and nodded along without wanting to ask what it meant. Or they’ve started researching how to hire staff overseas, hit a wall of legal complexity, and ended up here trying to understand their options.

Either way, you’re in the right place.

This is a plain-English explanation of what an employer of record is, how it works in practice, and whether it’s the right model for your business. No jargon. No unnecessary complexity. Just a clear picture of how the arrangement operates and what it means for you.

What Is an Employer of Record?

An employer of record (EOR) is a company that becomes the legal employer of a worker on your behalf. The EOR handles everything involved in employing that person — the contract, the payroll, the tax obligations, the statutory entitlements, and compliance with local employment law. You, as the client business, direct the worker’s day-to-day tasks, priorities and performance.

The worker does your work. But legally, they work for the EOR.

That distinction — between who directs the work and who employs the worker — is the core of how EOR functions.

A simple way to think about it

Imagine you need a skilled administration officer based in the Philippines. You know exactly what you need them to do. But you don’t have a legal entity in the Philippines, you’re not across Philippine employment law, and you have no idea how payroll and statutory contributions work over there.

Rather than spending months and significant money setting all of that up yourself, an EOR steps in as the legal employer. They sort the contract, the payroll, the compliance. You get the staff member working in your business from day one.

You manage the work. They manage the employment.

That’s the whole model. Everything else is detail.

What Does an EOR Actually Manage?

This is where it helps to be specific, because ‘managing the employment’ covers more ground than people often realise.

When Magna acts as employer of record for your offshore team member in the Philippines, we handle:

Employment contracts — drafted in compliance with Philippine labour law
Payroll processing — calculating and paying wages on time, every time
Tax withholding — Philippine income tax managed correctly at source
Statutory contributions — SSS (social security), PhilHealth (health insurance) and Pag-IBIG (housing fund) are mandatory in the Philippines and must be administered correctly
13th month pay — a legal requirement in the Philippines, equivalent to one month’s additional salary paid in December
Leave entitlements — annual leave, sick leave and public holidays managed in accordance with Philippine law
HR administration — employment records, documentation, and compliance with the Philippine Labour Code
Separation and offboarding — handled correctly if the arrangement ever needs to end

You don’t touch any of that. You define the role, you set the tasks, you manage the relationship day to day. Everything else is ours.

One of the things we often hear from business owners after they’ve been through the process is that they were surprised by how straightforward it felt on their end. The complexity is real — it’s just not on your plate.

How Is This Different From Using a Recruitment Agency?

This is probably the most common point of confusion, and it’s worth addressing clearly.

A recruitment agency finds you staff. An employer of record employs them.

A recruiter’s job ends when the candidate accepts the offer. From that point, the worker is your employee. You carry the employment obligations — the contracts, the compliance, the HR administration, everything.

With an EOR, the employment obligation never transfers to you. You’re engaging a service. The worker remains employed by the EOR throughout the arrangement.

	Employer of Record	Recruitment Agency
Who employs the worker?	The EOR	You do (after placement)
Who manages payroll?	The EOR	You do
Who handles compliance?	The EOR	You do
Who manages HR admin?	The EOR	You do
Who directs the work?	You	You
Ongoing relationship with provider?	Yes — ongoing service	No — ends at placement
Do you need a foreign entity?	No	Depends on location

This matters particularly for Australian businesses hiring in the Philippines, where establishing your own legal entity is expensive, slow and involves ongoing compliance obligations you’d carry indefinitely. The EOR model removes that requirement entirely.

Who Actually Uses Employer of Record Services?

The honest answer is: a much wider range of businesses than you might expect.

EOR is often associated with large multinationals expanding into new markets. And while that’s certainly a use case, it’s not the most common one for Australian businesses. The organisations we work with tend to look more like this:

Small-to-medium businesses that want to access skilled offshore talent without the overhead of a foreign entity
Registered Training Organisations building administration, student services and compliance support teams
Professional services firms adding finance, marketing or operations support
Growing businesses that need to scale quickly but can’t justify local hiring costs for every role
Business owners who are currently doing too much themselves and need capable support at a manageable cost

What these businesses have in common isn’t size or industry. It’s the same problem: they need capable people, they’ve identified that the Philippines is a viable source of that talent, and they want to do it properly without getting buried in foreign employment law.

Why the Philippines?

We get this question regularly, and it deserves a direct answer rather than a vague reference to ‘a deep talent pool.’

The Philippines has a high rate of English proficiency — genuine, conversational, business-ready English. It’s not an afterthought; it’s embedded in the education system and the workplace culture. For Australian businesses, communication with offshore team members is rarely an issue.

The time zone works. The Philippines is two to three hours behind Australian eastern time, depending on daylight saving. Your offshore team member can work standard business hours and be available during your core working day without either party making unreasonable sacrifices.

The talent is there. Degree-qualified professionals across administration, finance, compliance, student services, marketing and operations are available at a cost structure that simply doesn’t exist in Australia.

And critically — the Philippines has a mature, employee-protective labour framework. The Philippine Labour Code establishes clear rights and entitlements for workers. For Australian businesses that care about how their staff are treated, this matters. You’re not entering a grey market. You’re engaging professionals in a well-regulated employment environment.

EOR vs Setting Up Your Own Entity in the Philippines

Some businesses ask whether they should simply establish their own Philippine entity — a registered company through which they directly employ local staff. It’s a legitimate option. But for most Australian SMEs, it’s the wrong one.

Setting up a foreign entity in the Philippines typically involves:

Registering with the Securities and Exchange Commission (SEC) of the Philippines
Registering with the Bureau of Internal Revenue (BIR) for tax purposes
Registering with the relevant local government units
Opening a corporate bank account
Engaging local legal and accounting advisers to manage ongoing compliance
Maintaining the entity indefinitely, with annual filings, tax returns and regulatory obligations

This process takes months and costs significant money to establish — and then more money to maintain every year, whether you have two staff or twenty.

The EOR model achieves the same employment outcome without any of that infrastructure. For businesses hiring one to fifteen people, the arithmetic almost always favours EOR.

If you’d like a side-by-side look at the models in more detail, our article on EOR vs PEO vs recruitment agencies covers the full comparison.

What Does EOR Cost?

EOR pricing varies between providers and depends on the role, the seniority level and the scope of services included. Most providers charge in one of two ways: a flat monthly management fee per employee, or a percentage of the employee’s salary.

At Magna, we use transparent, fixed pricing rather than percentage-based fees. What that means in practice is that as your team member’s salary grows over time — because they should grow, and you should want to pay them more — your management fee doesn’t automatically grow with it.

The total cost of engaging an offshore professional through an EOR arrangement will vary, but a useful reference point:

Indicative all-inclusive cost range

Entry-level to mid-level roles (administration, student services, data entry): $18,000–$26,000 AUD per year

Mid-level specialist roles (compliance administration, finance support, marketing coordination): $24,000–$34,000 AUD per year

Senior roles (executive assistance, operations management, business development): $32,000–$45,000 AUD per year

These figures include the employee’s salary, all statutory contributions, EOR management fees and payroll processing. There are no hidden costs.

For context: the equivalent Australian roles typically cost $65,000–$100,000+ per year including superannuation and leave entitlements.

The cost difference is real. But it’s worth being clear: it reflects differences in cost of living between countries, not a difference in capability or quality of work.

Is EOR the Right Model for My Business?

It usually is, if the following apply:

You want to hire one or more professionals based in the Philippines
You don’t want to establish your own legal entity there
You want someone else to manage the employment administration, payroll and compliance
You’re comfortable directing the day-to-day work yourself
You want a transparent, structured and legally sound arrangement

EOR is less likely to be the right fit if you’re looking for a short-term contractor arrangement with no ongoing commitment, or if you’re in an industry with specific regulatory requirements that complicate overseas employment relationships.

The best way to find out is to have a direct conversation with an EOR provider who will ask the right questions before recommending anything. If a provider is willing to sign you up without understanding your situation, that’s worth noting.

What Happens Next — If You Want to Explore This

If this has answered the basic question and you’re now wondering what the process of actually engaging an EOR looks like, the next logical step is understanding how the engagement works from brief through to your offshore team member’s first week.

Our article on how EOR services work step by step covers the process in practical detail.

If you’d prefer to talk through your specific situation, the Magna team is easy to reach. We’ll ask you about your business, your current staffing setup, what you’re trying to achieve and whether EOR is actually the right model for you. If it isn’t, we’ll tell you that too.

Frequently Asked Questions

What is an employer of record in simple terms?

An employer of record is a company that employs workers on your behalf. You direct the work — the tasks, the priorities, the day-to-day expectations. The EOR handles everything involved in the employment itself: the contract, payroll, tax, statutory entitlements and HR administration. The worker does your work; the EOR manages their employment.

Is an employer of record the same as a staffing agency?

No. A staffing agency finds candidates and places them with you — after which the employment obligation is yours. An employer of record remains the legal employer throughout the arrangement. You never carry the employment liability. That’s a significant practical and legal distinction, particularly when hiring overseas.

Do I need an employer of record to hire staff in the Philippines?

You need some form of legal structure to employ someone in the Philippines. Your options are establishing your own Philippine entity, using a third-party EOR, or using a PEO structure. For most Australian businesses hiring small teams, EOR is the fastest, most cost-effective and lowest-risk approach. You get the staff member without the infrastructure.

What does the EOR actually pay for?

The EOR pays the employee’s salary and all statutory contributions — SSS, PhilHealth, Pag-IBIG and 13th month pay in the Philippines. They also handle tax withholding and all employment administration. The client pays the EOR a total fee that covers all of this, plus the management fee. There should be no surprises if the pricing is transparent upfront.

Can I end the arrangement if it’s not working?

Yes. EOR arrangements can be ended, though the process must follow Philippine employment law — which includes specific notice periods and in some cases separation pay obligations depending on the circumstances. Your EOR provider manages this process on your behalf. It is not as simple as ending a contractor agreement, which is exactly why the structure must be managed correctly from the start.

How quickly can I get someone started through an EOR?

From the point of agreeing on a candidate, onboarding through an EOR typically takes two to four weeks. This covers contract preparation, payroll setup and system access. The overall timeline from initial brief to someone starting work is usually four to eight weeks depending on how quickly a suitable candidate is identified.

What if I want to hire multiple people?

EOR scales straightforwardly. Each additional team member is added to the arrangement under the same structure. There is no need to set up anything differently for a second or third hire. Many of our clients start with one role, see how it works, and build from there.