When a company partners with a staffing agency, the agency doesn’t just help with recruiting; it also becomes the Employer of Record (EOR), also referred to as payrolling, for the individuals placed on assignment. This arrangement has important implications for payroll, compliance, and overall risk management.
If you’re unfamiliar with the EOR model or unsure how it differs from internal hiring, this article will walk through what it means, what responsibilities shift to the staffing agency, and how it impacts your business operations.
What Is an Employer of Record?
The Employer of Record is the legal entity responsible for managing employment-related functions for a worker. When a staffing firm serves as the EOR, it handles all administrative, tax, and legal obligations for that individual, even though the worker performs day-to-day tasks at your worksite.
The staffing agency, as EOR, typically takes responsibility for the following areas of employment.
Payroll processing and tax withholdings
The staffing firm manages wage calculations, issues paychecks, and ensures proper deductions for federal, state, and local taxes. This includes Social Security, Medicare, and any applicable state income taxes or garnishments.
Workers’ compensation insurance coverage
Your staffing partner provides and maintains workers’ comp insurance for its employees. If a worker is injured on the job, the agency handles the claim process, relieving the client company of that responsibility.
State and federal unemployment insurance
Staffing firms pay into state and federal unemployment insurance (SUTA and FUTA) on behalf of their employees. If an assignment ends, the agency manages any resulting unemployment claims or hearings.
Providing benefits that meet ACA requirements
The staffing firm ensures that eligible employees receive access to benefits that comply with the Affordable Care Act (ACA), such as minimum essential health coverage. Some agencies also offer dental, vision, or 401(k) plans with employer contributions.
Onboarding and offboarding procedures
Paperwork, I-9 verification, background checks, and policy acknowledgments are all coordinated by the staffing partner. When an assignment ends, the agency handles final pay, COBRA communication (if applicable), and separation paperwork.
Policy enforcement and employment documentation
The agency enforces its own employee handbook policies, which may cover attendance, conduct, safety, and more. It also maintains up-to-date employment records, which are important for audits, legal protections, and compliance.
Why the EOR Structure Matters for Compliance
Employment laws are constantly evolving, and compliance can be resource-intensive for businesses, especially when managing a contingent workforce. Missteps in areas like worker classification, wage/hour tracking, or ACA reporting can result in significant financial penalties.
The EOR model helps mitigate those risks by centralizing employment accountability with a third-party expert. Responsibilities like issuing W-2s, filing payroll taxes, and managing leave tracking are handled by the staffing agency, not your internal HR or finance teams.
This structure can be especially valuable when scaling quickly, navigating workforce fluctuations, or managing workers across multiple states with different labor laws.
What Types of Benefits Are Provided?
Contract workers employed by staffing firms generally receive minimum essential coverage (MEC) benefits as required by the Affordable Care Act. These may include health and dental insurance plans; access to 401(k) retirement plans with employer match; holiday pay or PTO, depending on the assignment and role; and additional benefits like short-term disability or wellness programs. The scope of benefits can vary based on the type of position.
A Comprehensive EOR Arrangement Doesn’t Stop at Benefits and Taxes
Many staffing agencies go beyond the basics when acting as the Employer of Record, offering additional services that ease the administrative burden for client companies, including but not limited to the following areas.
Paperless onboarding and offboarding workflows
EOR providers often streamline hiring and exits through digital platforms that handle everything from offer letters and tax forms to policy acknowledgments and direct deposit setup. This reduces paperwork and accelerates the time-to-start process.
Application of employee handbook policies
Temporary workers placed through a staffing agency are held to the agency’s own policies, such as attendance expectations, safety guidelines, and disciplinary procedures. This creates clear standards and ensures consistent handling of any performance or conduct issues.
Third-party supplier or subcontractor coordination
Some staffing partners also manage relationships with external vendors or subcontractors, especially in project-based environments. This includes negotiating rates, handling contracts or statements of work (SOWs), and tracking deliverables for milestone or hourly work.
Custom pay arrangements
Beyond standard hourly wages, staffing agencies can accommodate specialized pay structures such as daily rates, per-project fees, or milestone payments. This flexibility is especially helpful for consulting, creative, or IT roles that don’t follow traditional hourly models.
Tracking and administration of compliance documentation
From I-9 verifications to EEO reporting and wage-hour compliance logs, the staffing partner ensures that employment-related documentation is completed accurately and stored securely, helping protect your business during audits or legal reviews.
Final Takeaway
The EOR model is designed to relieve businesses of the administrative and legal complexities tied to employment, which is especially useful when managing a flexible workforce. By partnering with a staffing agency that serves as the Employer of Record, your company can reduce risk, improve compliance, and save time on back-office responsibilities.
Understanding how this structure works and what services are typically included can help you make more informed workforce planning decisions. Have more questions about working with a staffing firm? Check out our Learning Center for additional resources or contact our team for more information.