Understanding the difference between BPO and Employer of Record

Understanding the difference between BPO and Employer of Record

Many businesses looking to reduce operational costs, improve efficiency, or access global talent often come across two common models: the employer of record (EOR) and business process outsourcing (BPO). 

In this guide, we’ll explain what an EOR does, how it differs from BPO, and help you decide which model fits your business goals. If you’re trying to decide between managing your offshore hires or partnering with a vendor-managed team, read on.

What is an EOR?

An EOR is a third-party organisation that legally employs staff on behalf of your company in another country. It allows you to hire talent internationally without setting up a local entity, while remaining compliant with local employment laws.

The EOR handles all employment-related responsibilities, including payroll, taxes, benefits, and compliance. However, you retain day-to-day direction over the employee’s work.

Key features of an EOR

• Acts as the legal employer in the local country - The EOR becomes the official employer on paper, handling all legal employment responsibilities in that region.
• Manages payroll, tax, and benefits for the employee - It oversees accurate payroll processing, tax withholdings, and statutory employee benefits.
• Ensures full compliance with local labour laws - The EOR stays up to date with employment regulations, statutory contributions, mandatory benefits, and exit policies in each country they operate in.
• Allows your company to direct the employee’s work - The employee remains under the operational control of the client, who manages their tasks, goals, and performance.
• No need to set up a local entity - The EOR enables international hiring without requiring the client to establish a legal entity in the employee’s country.

Benefits of using an EOR

• Fast market entry - Enables companies to hire international talent quickly, bypassing the delays of setting up a legal entity.
• Compliance assurance - Provides confidence that employment contracts, benefits, and tax obligations meet local legal standards.
• Cost-effective international hiring - Helps reduce overhead costs by removing the need to set up a local entity or navigate employment laws independently in each country.
• Risk mitigation - Reduces the risk of penalties or legal issues by ensuring staff are correctly classified and employed in full compliance with local laws.
• Ideal for testing new markets - Provides flexibility to build teams in new regions while minimising the risk and cost of long-term commitments.

It’s worth noting that 72% of companies have seen a boost in efficiency after using EOR services¹, largely due to reduced time spent on operational tasks. By delegating these responsibilities, businesses can concentrate on core operations and strategic growth.

For more insights on leveraging EOR to hire globally, check out our detailed guide on how to use an Employer of Record in Australia to hire talent worldwide.

What is business process outsourcing or BPO?

BPO provides a fully managed team or function, typically based offshore, to handle specific parts of your business. It's commonly used for high-volume functions like customer service, where scalability, speed, and cost-efficiency are critical.

Unlike an EOR, where you manage the person directly, BPO companies manage the team for you - handling onboarding, performance, infrastructure, and day-to-day operations.

Key features of BPO

• Vendor-managed teams - BPO companies take full responsibility for managing and operating the team, ensuring seamless day-to-day operations.
• End-to-end support - ​​The BPO company handles all aspects of the function, from recruitment and training to ongoing performance management.
• Talent, tools, and infrastructure - The BPO company supplies the necessary talent, tools, and systems required for the outsourced function, ensuring a smooth operational flow.
• Typically output-based - BPO contracts often focus on specific deliverables or outcomes, allowing for flexibility in how the work is performed, but still emphasising measurable results.
• No legal employment responsibility on your side - The BPO company retains full legal responsibility for employment, including compliance with labour laws and payroll.
  
  

Benefits of BPO

• Cost savings - Outsourcing to offshore or nearshore locations can significantly reduce labour and overhead costs, offering a more budget-friendly alternative to in-house hiring.
• Scalability - Easily scale the outsourced team up or down as needed, providing flexibility to respond quickly to changing business demands.
• Minimised management demands - With the BPO company taking care of hiring, onboarding, and day-to-day operations, the internal management burden is minimised.
• Access to global talent pools - BPO opens access to a diverse range of specialised skills that may not be readily available locally.
• Operational efficiency - By delegating non-primary functions to a BPO company, businesses can focus internal resources on strategic, high-priority activities.
  
  

Key differences to know between BPO and EOR

Here’s a quick breakdown of how the two models differ in terms of key factors:

1. Level of control and flexibility

EOR - An EOR allows your business to retain complete control over the daily tasks and performance of your employees, while the EOR handles all the legal and compliance requirements. This is ideal for companies looking to manage remote teams while ensuring compliance in new markets.

BPO - With BPO, control is shifted to the third-party provider. The client retains control over the deliverables and overall project objectives, while the provider is responsible for managing operations, day-to-day delivery, and HR functions.

2. Employee integration and engagement

EOR - Since you’re managing the employee's tasks directly, you have a greater opportunity to integrate them into your company culture and engage them in long-term business goals.

BPO - Engagement in BPO is more transactional, as the BPO company typically handles the onboarding and management. This model efficiently scales tasks or functions, which allows businesses to stay agile and focused on their core goals.

3. Compliance and legal accountability

EOR - The EOR takes on all legal responsibilities, including taxes, payroll, and employment compliance with local laws, ensuring your business is legally protected without additional administrative workload.

BPO - In a BPO arrangement, the provider is responsible for managing their team's compliance. However, your business should still ensure that the service agreement aligns with your internal legal, regulatory, and data protection requirements.

4. Cost structure and administration

EOR - While an EOR is generally more cost-effective than establishing a local entity, the upfront costs may be higher than traditional outsourcing. However, the ease of administration, with the EOR handling payroll and benefits, can be a significant benefit.

BPO - BPO typically offers more immediate cost savings, especially for specific tasks or projects. Pricing is often predictable, and you gain access to specialised talent without the overhead of full-time employment or infrastructure investment.

5. Onboarding timeline

EOR - Generally enables fast onboarding depending on the country and role. Since the EOR acts as the legal employer, there’s no need to establish a local entity, which saves considerable time.

BPO - Onboarding timelines vary by vendor and complexity of the project. For common functions like customer support or marketing, some BPO companies may have pre-vetted staff available, while more specialised roles often require recruitment and ramp-up time.

6. Primary purpose

EOR - Best suited for hiring international employees when legal employment and day-to-day operational control are required. It’s a compliance-first solution that supports international workforce expansion.

BPO - Ideal when the goal is to delegate a function or process entirely to a third party. It works well for non-core business functions like customer support, data entry, or tech.

7. Complexity

EOR - Internally more complex, as your business manages the individual’s performance, integration, and development.

BPO - Operational complexity is reduced on your side since the BPO company manages the day-to-day delivery. However, maintaining quality standards, tracking KPIs, and ensuring smooth communication can add complexity, particularly when working with offshore or multi-time zone teams.

8. Transparency

EOR - High transparency. You have direct oversight of employees, access to performance data, and can use your own tools and processes.

BPO - Transparency depends on the BPO company. Some provide regular updates and access to performance dashboards, while others may limit visibility depending on their internal systems. Choosing a partner with robust platform tools can significantly improve oversight.

9. Accessibility

EOR - Employees work directly with your internal teams and are accessible via your standard communication channels (e.g., Slack, email, Zoom).

BPO - Access to the team is typically managed through the internal leads or account managers, though some BPO companies allow direct communication with team members, especially in dedicated or long-term setups.

Teamified’s outsourcing approach ensures direct access to your remote team, supporting seamless collaboration and day-to-day visibility.

10. Nature of relationship

EOR - Employees are embedded within your business. While the EOR is the legal employer, the working relationship mirrors that of a direct hire.

BPO - The relationship is typically defined by a service agreement, where the BPO company is responsible for achieving specific outcomes. While the focus is on deliverables rather than direct employment, effective partnerships foster strong collaboration and contribute to shared success.

11. Geographical implications

EOR - Enables compliant hiring in specific countries without establishing a legal entity. Useful for strategic market entry, local representation, or regional expansion.

BPO - Typically offers offshore or nearshore services, focusing on cost savings and availability of skills. The team’s location is based on the BPO company’s setup.

12. Duration and flexibility

EOR - Ideal for longer-term roles, especially when establishing stable, remote teams. The contracts provide flexibility while ensuring a strong employment relationship, making it well-suited for businesses looking to build lasting, compliant teams across borders.

BPO - Highly adaptable to short-term or long-term needs. You can start with a short engagement and extend or expand based on performance.

13. Scalability

EOR - Offers a scalable solution for international growth, especially for businesses planning steady, strategic expansion. Hiring can be ramped up as new markets open.

BPO -  Typically well-suited for scaling high-volume functions. BPO companies often have access to larger talent pools, making it easier to ramp up teams based on demand - particularly for well-defined, process-driven roles.

Choosing between EOR and BPO?

Not every global hiring need is the same. Here’s a quick guide to help you choose the right model based on your goals.

Use an EOR if:

• You want to hire full-time team members in another country without setting up a local entity.
• Compliance with local employment laws is a priority.
• You need to maintain direct control over the employee’s daily work, performance, tasks, and KPIs.
• You’re expanding into a new market and want to build long-term capability.
• You’re looking to scale strategically while mitigating legal risks.
  
  

Use a BPO company if:

• You prefer the vendor to handle training, onboarding, and operations.
• You require access to tools, infrastructure, and specialised expertise through one provider.
• You’re delegating a specific function or project, not individual hires.
• You don’t need direct control over the team’s day-to-day operations.
• You’re looking to reduce admin, overhead costs, and free up internal resources.
  
  

Can you switch from BPO to EOR?

Absolutely. Businesses often transition to an EOR model as their requirements evolve.You might start with BPO to test a business function, then move to an EOR model to retain high-performing individuals and bring them closer to your internal operations. On the flip side, if managing individual staff becomes too resource-intensive, shifting from EOR to a BPO model can streamline operations and reduce overhead.

Just keep in mind: transitioning between models may involve contractual, compliance, or onboarding considerations - so it’s important to get an expert guidance.

While BPO companies and EORs can both help you scale faster and access global talent, their functions differ at the core. The right choice depends on how much control you need, how you want to manage risk, and what fits your long-term strategy. If you’re leaning towards an EOR model, our guide on 10 things to consider when choosing an employer of record can help you make a confident, well-informed decision.

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References:

[1] How does an Employer of Record Work? Discover the Powerful Benefits! (hrone.com)

[2] EOR Vs Traditional Outsourcing: Which is Right for Your Business? (virtualstaff.ph)

[3] 25 Key Differences Between Outsourcing and Employer of Record (xpandium.com)

[4] Outsourcing or Employer of Record: 8 Key Differences (outstaffer.com)

[5] EOR vs. BPO : Your Ultimate Guide in Managing Remote Teams (remotify.ph)

[6] EOR vs. BPO: Exploring benefits and differences (outsourceaccelerator.com)

[7] Employer of Record (EOR) vs Business Process Outsourcing (BPO) - What’s The Difference? (hireteamup.com)

[8] From Outsourcing to Smart-sourcing: Why Choose EOR vs. the BPO Solution (recruitgo.com)