Who Is the Legal Employer in an EOR Arrangement? A Plain-English Answer
📋 Key Takeaways on Legal Employer Status
- ✓Legal vs. Managing Split: The EOR holds the employment contract; you control daily work, product roadmap, and operational supervision.
- ✓Bulletproof IP Assignment: Intellectual property passes from worker → EOR → client seamlessly via back-to-back assignment covenants.
- ✓Not US Co-Employment: Global EOR is not US PEO co-employment; there is no shared corporate liability under international labor codes.
- ✓Statutory Protections: Mandatory severance, pension, and paid leave are enforced by the EOR’s local corporate entity.
🎯 Who Needs This Clarity
- • Corporate legal counsels reviewing international Master Services Agreements (MSAs).
- • Founders concerned about IP contamination, patent validity, and trade secrets abroad.
- • CFOs evaluating permanent establishment risks and joint employer liabilities.
⚠️ Who This Does Not Apply To
- • Domestic US companies utilizing a standard domestic PEO under IRS Section 7705 CPEO rules.
- • Direct cross-border 1099/B2B independent contractors without an intermediary.
- • Fully owned foreign subsidiaries running their own local payroll entity.
The EOR Responsibility Matrix: Who Does What?
| Functional Area | Legal Employer (EOR) | Managing Employer (Your Company) |
|---|---|---|
| Contract Execution | Executes compliant local contract in accordance with statutory labor code | Defines salary, role scope, milestones, and reports to managers |
| Payroll & Tax Withholding | Calculates gross-to-net, remits national taxes, files municipal returns | Funds consolidated monthly invoice covering payroll and EOR fee |
| Statutory Benefits | Enrolls in mandatory pensions, social security, and statutory medical schemes | Selects optional supplemental perks (e.g. gym, wellness, remote stipends) |
| Day-to-Day Work Direction | Zero involvement in operational tasks | Directs daily priorities, project management, meetings, and deliverables |
| Performance & KPIs | Maintains documentation for legal record | Sets quarterly goals, conducts reviews, approves promotions and salary increases |
| Intellectual Property (IP) | Captures work-for-hire rights under local law; assigns 100% to client | Owns 100% of code, patents, trademarks, and trade secrets |
| Termination & Offboarding | Delivers statutory notice, calculates severance, defends labor tribunals | Makes commercial decision to end assignment; provides documented cause |
| Equipment & IT Hardware | Coordinates local delivery and asset tracking | Determines hardware tier, security tooling, and VPN access |
| Equity / Stock Options | Handles required local payroll tax withholding | Issues share options or RSUs directly from company parent cap table |
Who Owns the Intellectual Property Created by an EOR Employee?
1. The Local Employment Agreement (Employee → EOR)
In civil law countries like Germany, France, or Japan, US-style “work made for hire” doctrine does not exist. The EOR’s localized employment agreement includes statutory clauses where the worker irrevocably transfers all assignable copyright, patents, and technical discoveries to the employer of record, complete with explicit waiver of non-mandatory moral rights.
2. The Master Services Agreement (EOR → Client Company)
Simultaneously, the commercial Master Services Agreement between Global EOR Services and your company stipulates an immediate, automatic, and worldwide transfer of all such intellectual property directly to your corporate entity the instant it is generated. There is zero IP leak or intermediary claim.
Download the EOR Responsibility & Liability Matrix
A 12-page legal guide outlining indemnification clauses, IP chain-of-title language, and statutory severance obligations across 30 jurisdictions.
Is an EOR Arrangement the Same as Co-Employment?
US PEO (Co-Employment Model)
- • Requires the client to own a registered US federal EIN and corporate entity.
- • Both PEO and client are recognized as joint employers under federal law.
- • Both parties share joint and several liabilities for wage claims and workers' comp.
Global EOR (Separate Triangular Model)
- • Client does not need a local entity in the worker's country.
- • The EOR is the sole legal employer recognized by foreign courts and tax agencies.
- • The client has a commercial service contract with the EOR, eliminating joint employer status.
Who Handles Termination and Severance in an EOR Setup?
Outside the United States, almost every country operates under protective labor regimes (such as the UK Employment Rights Act, French Code du Travail, or German KSchG). Dismissing an employee requires proven statutory cause, documented progressive discipline, mandatory notice periods, and statutory severance pay. The EOR's local legal team prepares the settlement agreement, calculates severance formulas, and ensures the dismissal is airtight against unfair dismissal lawsuits.
Frequently Asked Questions About EOR Legal Employers
Who is the legal employer in an Employer of Record arrangement?
The Employer of Record (EOR) is the registered legal employer on paper in the worker's home jurisdiction. The EOR signs the local employment agreement, reports to tax authorities, files payroll, and guarantees statutory benefits. However, your company remains the operational managing employer directing daily tasks, deliverables, and performance.
Does an EOR own our company's intellectual property or work product?
No. Compliant EOR agreements feature a back-to-back assignment structure: the employment contract obligates the employee to assign all inventions, patents, and copyrights to the EOR, which automatically and immediately transfers 100% of that intellectual property to your company under the Master Services Agreement.
Is an EOR considered co-employment?
Strictly speaking, no. True co-employment is a US-specific legal construct associated with Professional Employer Organizations (PEOs), where both parties share employer liabilities. Internationally, most labor systems do not recognize co-employment; the EOR is the sole legal employer on paper, while your firm holds a commercial services contract.
Can our company fire an EOR employee directly?
No. Because the EOR holds the legal employment contract, the formal termination notice must be executed and served by the EOR in compliance with statutory notice periods, severance formulas, and municipal labor consultation procedures. Your company makes the business decision to end the assignment.
Who is liable if an employee files an unlawful dismissal or discrimination claim?
The EOR is named in the tribunal or labor court because it is the employer of record. However, the commercial Master Services Agreement outlines an indemnification matrix: the EOR is liable for its own procedural or payroll failures, while the client company indemnifies the EOR for claims stemming from managerial misconduct or unlawful dismissal directives.
Can we grant stock options or equity to workers hired through an EOR?
Yes, client companies can grant equity incentives (such as unapproved share options, phantom stock, or RSUs) directly to EOR team members. However, local tax withholding on option vesting or exercise must be coordinated with the EOR to prevent adverse tax audits.
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