The hidden risks of using an employer of record: Immigration and tax compliance in focus
James K Smith · Posted on: July 30th 2025 · read
As the use of an Employer of Record (EoR) has grown, so has regulatory scrutiny, with authorities imposing stricter regulations on how EoRs operate, which can lead to compliance challenges. In this insight, James Smith, James Steer and Joanna Rose explore what an EoR is and highlight some of the immediate risks for employers.
But what is an EoR and what are some of the immediate risks for employers?
What is an Employer of Record (EoR)
An EoR is a third party provider that legally employs workers on behalf of a company (the ‘end user’), with the intention of simplifying the hiring of international workers through being the legal employer and managing compliance areas such as payroll and HR administration.
An EoR is therefore a popular way to deploy talent into a new jurisdiction quickly or where an employer is looking to negate the need to establish a local presence, whilst still retaining management responsibility for the worker.
Immigration
EORs are not an alternative to being a Sponsor Licence holder in the UK. When it comes to UK immigration, things can get murky fast—especially when trying to figure out whether someone can legally carry out their “day job” or if they’re limited to permitted activities.
In the UK, the line between what counts as “work” and what’s allowed under “permitted activities” on a visitor visa is crucial. Just because someone isn’t on your payroll locally doesn’t mean they’re not working in the eyes of the Home Office.
Inbound workers using a UK EoR must fall into one of two camps:
1.
They hold a valid work visa (e.g. Skilled Worker, Global Business Mobility).
2.
They’re here under the visitor route but strictly sticking to permitted activities—think attending meetings, negotiating deals, or giving one-off talks.
This is where many companies trip up. If someone is doing their actual job while physically present in the UK—even if they’re paid and “employed” abroad—that’s considered work and not allowed on a visitor visa. The Home Office isn’t impressed by creative interpretations here. If it walks like a job and talks like a job, it probably needs a visa.
Tax
Major complications arise where individuals engaged via EoR’s travel internationally for business purposes. Even though an EoR may be responsible for handling the ‘home’ compliance considerations, should the individual work in the jurisdiction of the end user, there are potential compliance requirements for the end user.
Using the UK as an example, there are strict employment status considerations and in addition, from an employment tax perspective, an individual engaged via an EoR is still likely to be deemed as ‘working for’ and ‘economically employed’ by the end user.
This is because the end user is ultimately responsible for the work performed and for paying the individual. Consideration should therefore be given to payroll withholding responsibilities.
If you have a UK end user, utilising an EoR to hire a non-UK based individual and the individual comes to work in the UK, there may be UK employer compliance obligations, such as the operation of Pay As You Earn (PAYE) for income tax and social security purposes.
On the corporate tax side, employing an individual via an EoR will not eliminate the risk of triggering a permanent establishment (broadly a corporate tax presence) in the individuals ‘home’ location.
"Authorities may look at the role the individual is undertaken, if the end user provides premises and ultimately may look through the EoR arrangement. Consideration should therefore be given to whether despite the EoR, a risk remains from a corporate tax perspective."
Relaxations
There are occasional immigration easements, like expanded guidance on permitted activities or temporary flexibility during global events (remember COVID?), but these are rare, temporary, and should never be relied upon as a long-term solution.
This is similar on the tax front. Withholding requirements are rigorous and many countries operate a day one reporting and withholding requirement for income tax and social security.
"Double tax treaties, social security agreements and domestic legislation can provide relief, however, this would require careful planning and consideration as it would depend on the specifics of the arrangement such as the activities undertaken and the extent of duties performed."
How MHA can help
Just because an EOR handles payroll and HR doesn’t mean immigration and tax compliance is off your plate. You’ll need to ensure the inbound worker has the correct immigration status, and that their day-to-day activities align with what’s legally permitted under that status. Similarly, you will need to ensure that where cross-border activities are undertaken that the necessary reporting and withholding occurs.
MHA has an international network of tax and legal specialists who can help identify and mitigate risk and support organisations as they make decisions on the best way to proceed.
