How Employer of Record Services Work in Australia: A Step-by-Step Overview
Understanding what an employer of record is and understanding how it actually works in practice are two different things.
A lot of Australian business owners come to us having read a definition — the EOR is the legal employer, you direct the work — and still feeling uncertain about the mechanics. What do you actually do? What does the EOR do? What does the process look like from the day you decide you want to hire someone through to that person working in your business three months later?
That’s what this article covers. A practical, step-by-step picture of how an EOR engagement works — without the jargon, and without glossing over the parts that actually require attention from you.
The short version, before the detail
You define the role. The EOR finds or confirms the candidate. You select the person. The EOR employs them legally in the Philippines — handling the contract, payroll, tax and statutory contributions. You manage their day-to-day work. The EOR handles everything in the background that keeps the employment arrangement compliant and running properly.
That’s the whole model. Everything below is the detail that makes it work
The EOR Process at a Glance
Before walking through each step, it helps to understand the shape of the engagement. An EOR arrangement isn’t a one-off transaction. It’s an ongoing service relationship between three parties: you (the client business), the EOR provider, and the offshore team member.
Your relationship with the team member is operational — you direct the work, set priorities, give feedback and manage performance day to day. Your relationship with the EOR is commercial — you pay a monthly fee, and they handle the employment infrastructure. The team member’s legal employment relationship is with the EOR, not with you.
Once that triangle is clear, the process makes intuitive sense.
Step 1 — Define the Role
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Define what you actually need — specifically.
This is the step most businesses underinvest in, and it’s the one that has the most influence on the outcome. Before any candidate search begins, you need to be able to describe the role clearly: the tasks involved, the systems the person will use, the hours you need them to work, who they’ll report to, and what good performance looks like after 90 days.
A vague brief — ‘I need someone to help with admin’ — produces a vague match. The more specific you are about what the role involves day to day, the better the match, the faster the onboarding, and the more quickly the team member reaches genuine productivity. Treat this step as seriously as you would a local hire. Write it down. Get it on paper before the first conversation with your EOR provider.
Something people don’t always realise at this stage: your EOR provider should be asking you questions, not just taking your brief at face value. A good provider will push back if a brief is unclear, flag if a role seems likely to be misclassified, or suggest a different structure if your needs would be better served another way. If a provider accepts a vague brief without question and promises to find someone immediately, that’s worth noting.
Step 2 — Candidate Matching and Selection
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The right person is identified and you make the call.
Depending on whether you’re bringing a specific candidate or relying on the EOR to source one, this step looks slightly different. If you already have someone in mind — a referral, a previous contractor, someone you’ve worked with — the EOR can engage them directly under the EOR structure. If you need the EOR to find someone, they’ll conduct a search based on your brief and present shortlisted candidates.
In either case, you should be involved in the final selection. Most clients conduct a video interview before confirming a candidate. This isn’t just a courtesy — it’s important. The team member needs to understand your business and what you expect. You need to assess not just their skills but whether they’ll work well with your team and communication style. A fifteen-minute video call at this stage prevents months of friction later.
One of the biggest misconceptions we see is clients who treat the candidate selection stage as the EOR’s responsibility. It’s not. The EOR can find excellent candidates, but only you know what your business actually needs from day to day. The decision is yours.
Step 3 — The EOR Agreement
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The commercial terms between you and the EOR are formalised.
Once a candidate is confirmed, you and the EOR enter a service agreement. This sets out the monthly fee, what it covers, the notice period required to end the arrangement, and the responsibilities of each party. Read this document carefully — specifically the sections on what happens if you want to end the arrangement, and what the EOR’s obligations are if the team member performs poorly or leaves.
The fee structure matters here. Some EOR providers charge a percentage of the employee’s salary — which means every pay rise you give your team member automatically increases your management cost. Others charge a fixed monthly fee. Over a multi-year engagement, the difference between these structures is meaningful.
Step 4 — Employment Contract and Payroll Setup
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The EOR employs the team member — legally, compliantly, completely.
This is where the EOR does the work that justifies the arrangement. They issue the employment contract to the team member under Philippine law, register them with the relevant statutory schemes (SSS for social security, PhilHealth for health insurance, Pag-IBIG for the housing fund), set up payroll, and manage the tax withholding obligations. They also calculate and accrue 13th month pay — the legally mandated annual bonus equivalent to one month’s salary that must be paid in December each year.
All of this happens without any action required from you. You don’t see the Philippine employment contract unless you ask. You don’t interact with the Bureau of Internal Revenue. You don’t register anything. The EOR manages the entire employment setup in the Philippines and confirms when the team member is ready to start.
This step typically takes two to three weeks from the point of confirming a candidate. The timeline depends on the completeness of the team member’s documentation and the efficiency of the EOR’s processes. A well-run EOR has this down to a reliable cadence. If a provider can’t give you a reasonable timeline expectation, ask why.
Step 5 — Systems Access and Practical Setup
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Your new team member needs to be set up to actually do the work.
This step is your responsibility — and it’s the one most commonly underestimated. Before your team member’s first day, they need access to every system, platform and tool they’ll be using. Email. Project management software. Communication tools like Slack or Teams. Any client-specific platforms, databases or student management systems. Any shared drives or document repositories.
Equipment is also worth thinking about early. Some clients provide a laptop or monitor. Others rely on the team member’s own setup with an equipment allowance. Your EOR provider can advise on what’s standard and, in some cases, can manage equipment procurement directly. The point is: a team member who spends their first week waiting for access to basic tools is not a team member who is building confidence and momentum. Get this sorted before day one.
Step 6 — Day One and the First 30 Days
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Treat the first month as a calibration period, not an evaluation.
The first thirty days are the most important in the whole engagement. This is where habits form, expectations get set, and the working relationship is either built or quietly undermined. Businesses that invest proper time in this period — daily check-ins for the first two weeks, clear task briefs, timely feedback, genuine patience with the learning curve — almost always end up with high-performing team members. Businesses that treat this as a trial period with a binary pass/fail outcome at the end of the month consistently struggle longer.
A new team member in any context needs time to understand how your business operates, what your communication style is, and what ‘done well’ actually looks like. An offshore team member has all of that to learn without the benefit of walking down the corridor to ask someone a question. Make the communication explicit. Build in regular touchpoints. Be available.
Who Does What — The Ongoing Division of Responsibility
Once the arrangement is running, it’s useful to be clear about where your responsibilities end and the EOR’s begin. This is the table we wish more clients had seen before they started.
| Your responsibility | The EOR’s responsibility |
| Setting tasks, priorities and deadlines | Processing payroll accurately and on time |
| Day-to-day communication and direction | Remitting statutory contributions (SSS, PhilHealth, Pag-IBIG) |
| Performance feedback and coaching | Managing 13th month pay accrual and payment |
| Providing tools, access and systems | Maintaining employment contract compliance |
| Deciding when to expand or end the arrangement | Managing HR documentation and employment records |
| Onboarding the team member into your processes | Handling termination correctly under Philippine law if required |
| Building the working relationship | Providing ongoing HR support and advice to both parties |
The line between these two columns is where most confusion arises. Clients sometimes expect the EOR to manage performance issues directly on their behalf, without their involvement. That’s not how it works. You manage the relationship; the EOR manages the employment. If a performance issue develops, the right approach is for you and the EOR to work through it together — not for either party to handle it unilaterally.
What Happens If You Want to End the Arrangement?
This is a question worth understanding before you start, not when you’re already in the situation.
Ending an EOR arrangement requires proper process under Philippine employment law. The notice period, the grounds for separation, and the obligations around separation pay all depend on the circumstances — whether the arrangement is ending because the role is no longer needed, because of the team member’s performance, or because of mutual agreement.
An EOR that is doing its job properly will manage this process correctly on your behalf. That means proper notice, correct documentation, and compliant separation where required. It also means you should not simply stop paying and expect the arrangement to dissolve without consequence — Philippine employment law has specific requirements that must be followed.
The practical implication: if you think there is a chance the arrangement won’t work out, raise concerns early. Performance issues are much easier to resolve when they’re addressed at the two-month mark than at the twelve-month mark. Your EOR provider should be a resource for navigating those conversations, not someone you contact only when things have already broken down.
A Note on Ongoing Communication With Your EOR
One thing we’ve learnt from working with Australian businesses over time: the EOR relationship works best when it’s treated as a genuine partnership rather than a set-and-forget service.
That means keeping your EOR informed if the team member’s role changes significantly, if there are performance concerns developing, if you’re thinking about expanding the team, or if business circumstances change. The EOR can only manage the employment relationship properly if they have an accurate picture of what’s actually happening.
A quarterly check-in with your EOR provider — even a brief one — is worth building into your rhythm. It keeps the relationship current and means you’re not scrambling to brief them only when something urgent needs attention.
If you’d like to understand the cost structure of EOR services in more detail — including what’s included in a typical fee and how providers differ — our article on the cost of employer of record services covers that ground specifically.
And if you’re ready to talk through what an EOR arrangement would look like for your specific business, the Magna team is available for that conversation. We’ll walk you through the process as it relates to your situation — no generic sales pitch, just a practical discussion about whether this is the right path for you.
Frequently Asked Questions
How long does it take to get started with an EOR?
From the point of agreeing on a candidate, employment setup through an EOR typically takes two to three weeks. This covers the employment contract, payroll setup and statutory contribution registration. If the EOR is also conducting the candidate search, add two to five weeks for that process depending on the specificity of the role. Most businesses have someone working within six to eight weeks of starting the conversation.
Do I sign a contract with the EOR or with the team member?
You sign a service agreement with the EOR — not an employment contract with the team member. The employment contract is between the EOR and the team member. Your agreement with the EOR sets out the commercial terms, the fee structure, the notice period and the responsibilities of each party. You will not be named as the employer in the team member’s contract.
What happens if the team member gets sick or takes leave?
Leave entitlements — annual leave, sick leave and public holidays — are managed by the EOR in accordance with Philippine law. When a team member takes leave, the EOR handles the administration. Your cost does not change day to day based on leave taken — the monthly fee structure accounts for this. Philippine public holidays differ from Australian ones, so it’s worth familiarising yourself with the Philippine holiday calendar when planning project timelines.
Can I give my offshore team member a pay rise?
Yes — and you should, when it’s warranted. Pay increases are agreed between you and the EOR, and the EOR updates the employment contract and payroll accordingly. If your EOR charges a percentage-based management fee, a pay rise will increase your total monthly cost. If your EOR charges a fixed fee, the management component stays the same. This is one of the practical reasons fixed-fee pricing tends to be better for long-term arrangements.
What if I want to hire a second person through the same EOR?
Additional hires are added to the existing arrangement. You don’t need a new EOR agreement for each person — most service agreements are structured to accommodate multiple team members under the same commercial terms. Each new hire goes through the same process: role definition, candidate selection, employment setup. The EOR manages each team member’s payroll and compliance separately.
Can the team member ever become my direct employee?
In some circumstances, yes. If your business were to establish a registered entity in the Philippines, it would be possible to transfer the employment relationship directly to that entity — removing the EOR from the arrangement. For most Australian SMEs, the cost and complexity of maintaining a Philippine entity makes this rarely worthwhile. But if your team grows significantly over time, it’s a conversation worth having with your EOR provider and a Philippine employment lawyer.
What does ‘the EOR manages compliance’ actually mean in practice?
It means the EOR monitors changes to Philippine employment law, ensures payroll calculations stay correct as statutory rates change, manages leave accrual and entitlements, handles the correct process for any changes to the employment relationship, and manages offboarding correctly if the arrangement ends. You don’t need to track changes to Philippine labour law or monitor contribution rate adjustments — that’s the EOR’s job. What you do need to track is the performance and direction of the work, which is your job.