Working with an employer of record in Canada can benefit many U.S. and international companies. But, it’s not the best choice for every business. Therefore, it’s important to understand the various employer of record pros and cons to determine if an EOR is right for you.
In this article, our Canadian employment experts will share an unbiased look at the risks and benefits of EOR services. We’ll also provide insight into when using an employer of record is beneficial and when alternative employment options are better.
But first, let’s take a brief look at what an EOR is and the role it plays in supporting your business.
What is an employer of record, and what does an EOR do?
AAn EOR (employer of record) is a company that helps businesses legally and compliantly hire employees in locations where they don’t own a legal entity. For example, suppose a U.S. company wants to hire employees in Canada but doesn’t have a subsidiary there. In this case, it can work with an EOR to legally hire employees without setting up a legal entity.
What is the role of an EOR? An employer of record functions as the legal employer of the international employees it hires on your behalf, assuming full legal accountability. An EOR is responsible for regulatory compliance and handles all employee-related administrative tasks, including payroll, payroll deductions, employee benefits, etc. If required, an employer of record may also assist with employee immigration, including Canadian work permits.
Now, let's look at the employer of record pros and cons every company should consider before hiring an EOR in Canada.
Employer of Record Pros and Cons to Consider
As an experienced EOR, the Thirdsail team is intimately familiar with the benefits and risks of working with an employer of record. To help you decide if an EOR is right for your business, we’ve created a comprehensive and unbiased list of employer of record pros and cons.
Employer of Record Benefits
What are the benefits of working with an EOR? Below are some of the most significant benefits of an employer of record.
1. Hire in Canada without setting up a legal entity
For most international companies, the biggest barrier to hiring in Canada is not finding the right person — it's the legal groundwork required to employ them. Setting up a Canadian subsidiary takes time, money, and ongoing administrative effort. An EOR removes that barrier entirely. You bring the candidate, and the EOR handles the legal employment from day one.
2. Reduce the cost of international expansion
Expanding your workforce internationally can be costly, especially if you must establish a legal entity in a new country. In addition to the high cost of setting up a subsidiary, you may require a physical office and additional legal, financial, and HR teams. But, with the help of an employer of record, you can avoid these complex, time-consuming, and expensive global expansion initiatives.
Working with an EOR can also help reduce administrative costs by minimizing the employment-related tasks (e.g., payroll, taxes, employee benefits, etc.) your internal team is responsible for. With the ability to leverage economies of scale, an EOR can also help reduce employment expenses by offering better rates for health insurance and other benefits.
3. Enter new markets faster
Speed is one of the most underrated advantages of an EOR. Since working with an EOR allows you to skip the time-consuming step of setting up a legal entity, you can hire employees in new markets much more quickly. In addition, partnering with an EOR will allow you to avoid the painstaking process of sifting through unfamiliar employment laws and regulations to ensure compliance. Experienced EORs also have efficient onboarding processes to help you rapidly scale your business and enter new markets.
For example, with the help of an EOR, your business can hire and onboard international employees in just a week or two. This process is quick and easy, especially if you have all the information you need ready to go.
On the other hand, the time it takes to set up a subsidiary can vary greatly. Many types of corporations also require a resident director in Canada, which complicates the process. In some cases, setting up a subsidiary can take three to six weeks or more (if all paperwork is complete and there are no delays). The process must be completed before you begin recruiting, hiring, and onboarding.
4. Guarantee compliance with local employment laws and regulations
Canadian employment law is complex, varies by province, and changes regularly. The legal and employment experts at established EORs, like Thirdsail, are familiar with local labor laws and policies. Backed by extensive experience and knowledge, they’ll ensure your business operates compliantly in foreign markets. As a result, you can avoid the cost and inconvenience of legal issues and penalties.
For example, an employer of record will implement proper hiring practices, help you issue detailed employment contracts, file local taxes, and ensure you offer compliant and competitive employee benefits packages.
5. Eliminate employment-related risks and liabilities
When an EOR employs your Canadian workers, it assumes full legal responsibility for those employees. Therefore, working with an employer of record can eliminate employment-related risks and liabilities and shield your business from costly legal conflicts.
This is a significant benefit when considering employer of record pros and cons, especially when comparing an EOR vs PEO.
6. Reduce administrative burdens and free up your internal resources
Payroll, tax remittances, benefits administration, ROE filings, T4s — Canadian employment generates a significant amount of administrative work. Outsourcing back office and HR-related responsibilities to an EOR will allow you to better utilize your internal resources for core business functions and strategic initiatives. Therefore, an employer of record can be a valuable resource when expanding your operations.
7. Access a bigger, better talent pool.
Hiring internationally opens up a much larger and more diverse talent pool. With experience hiring top talent in the foreign market you wish to enter, an employer of record will know where to find the best candidates and how to attract them! As a result, you can enhance the quality of your workforce and boost your competitive advantage.
8. Provide a better experience for your Canadian employees
Your Canadian employees deserve the same quality of employment experience as your home-country team. In addition to helping you find and attract top talent, an EOR will help you retain valuable employees by providing a favorable employee experience.
There are numerous employer of record benefits that enhance employee experience, including:
- Fair and competitive employment agreements
- Attractive benefit packages
- Employee protection (e.g., employee rights)
- Accurate, timely, and convenient payroll and benefit distribution
- Prompt HR support and resolutions
These EOR benefits can ensure a happy, healthy workforce, leading to higher job satisfaction and improved retention.
The benefits of an EOR for employees are another significant consideration when contemplating employer of record pros and cons.
9. Improve operational efficiency
In addition to enhancing operational efficiency by implementing streamlined hiring and employee management processes, an EOR can provide valuable workforce data and insights. Using this information, you can optimize your global operations and make better, more informed business decisions.
After reviewing the employer of record pros above, you might wonder - what’s the catch? Are there risks to using an EOR? Let’s examine some disadvantages.
Employer of Record Risks and Disadvantages
Every hiring solution has trade-offs. Here's an honest look at the downsides of working with an EOR — and how to mitigate them.
1. It costs more than hiring contractors
An EOR is a premium service. It costs more than classifying workers as independent contractors, and for very early-stage companies with tight budgets, that cost can be a real barrier. That said, it's almost always cheaper than setting up a subsidiary - and it comes with legal protections that contractor arrangements don't. The real question isn't whether an EOR is expensive, it's whether the cost is justified given your hiring volume and risk tolerance.
2. Benefits may not be identical across countries
If you're hiring in multiple countries through different EORs or under different local standards, your employees' benefits and employment terms may vary. Vacation accrual, health coverage, and other entitlements are governed by local law and local market norms - and those differ by country. For companies that want perfectly uniform global employment packages, this is a genuine constraint worth understanding upfront.
3. Fluctuating operational costs.
When hiring international employees through an EOR, you’ll be exposed to fluctuations in foreign currency exchange rates. As a result, your month-to-month costs will vary.
For example, Canadian employees are paid in Canadian dollars. As the CAD/USD exchange rate changes, so will your employment costs in USD terms. This isn't unique to EOR arrangements - it applies to any international hire - but it's worth factoring into your financial planning, particularly if you're operating on tight margins.
4: You give up some direct control
When you partner with an EOR, their HR, legal, and tax experts will manage many employment-related tasks associated with your international employees, including payroll. For companies used to managing everything in-house, this shift can feel uncomfortable.
The best way to mitigate this is to choose an EOR that treats you as a partner and keeps you informed rather than one that operates as a black box. At Thirdsail, we keep clients in the loop on everything that affects their employees. You’ll maintain authority over day-to-day employee operations and oversee all important business decisions relating to your workforce.
5. Quality varies significantly between providers
Not all EORs are created equal. An inexperienced provider can rush onboarding, communicate poorly, and leave your employees feeling unsupported. That erodes trust, hurts retention, and reflects on your company even though the EOR is the one falling short. Before committing, ask for references, request a demo, and pay attention to how they communicate from the very first interaction. Their responsiveness at that stage is a preview of how they'll handle your employees.
6. Negative impact on employee experience and company culture.
When a third party handles employment administration, some employees can feel a disconnect between themselves and the company they actually work for. This is particularly true if the EOR's onboarding and HR communications aren't well integrated with your own company culture. The fix is to stay closely involved in your employees' experience — don't leave culture-building entirely to the EOR.
PRO TIP: To get a feel for an EOR’s communication skills and style, contact them with a few initial questions. Based on their reply, you can determine whether their communication is timely, thorough, helpful, and able to meet your needs.
7. Data security and digital compliance.
An EOR handles sensitive employee data including personal information, banking details, and tax records. This introduces the potential for data security risks. If the EOR has inadequate digital security or doesn’t meet compliance regulations, this can pose a significant threat to your employee’s privacy.
Always ask prospective EORs about their data security protocols and compliance practices before signing anything.
8. You're dependent on a third party for critical functions
Payroll, compliance, and benefits administration are not areas where you can afford disruptions. If your EOR has operational issues - staff turnover, system failures, or service gaps - your employees feel the impact directly. Choosing an established, well-resourced EOR with a proven track record significantly reduces this risk.
9. Compliance risks don't disappear entirely
An EOR takes on legal responsibility for your employees, but that doesn't mean compliance risk vanishes completely. If an EOR mishandles a termination, files incorrect payroll remittances, or fails to stay current with Canadian employment law changes, your business can still face consequences. This is why choosing an EOR with deep Canadian-specific expertise matters. Generic global providers covering 150 countries rarely have the same depth of local knowledge as a specialist like Thirdsail.
It's worth noting that most of these risks are significantly reduced when you work with an experienced, Canada-focused EOR. The cons above apply most strongly to inexperienced or poorly resourced providers.
That brings us to the end of our employer of record pros and cons list. If, at this point, you’re still unsure whether an EOR is the right choice for your business, keep reading.
Is an EOR right for your business?
The best way to answer that question is with real scenarios. Here are two common situations and whether an EOR makes sense for each.
Scenario 1: Rapid Growth In a New Market
ABC Tech is a small but rapidly growing technology company based in the United States. Company executives have identified a significant market opportunity in Canada. They would like to hire a team of local software developers to support a product launch within the next six months. The company has a small HR and legal team. They don’t currently own a legal entity in Canada but would like to hire 12 local employees.
Is an EOR right for this business? Yes.
In this case, ABC Tech's best option is to work with an employer of record in Canada. This will allow the company to hire local employees without setting up a costly subsidiary. In addition, while the EOR helps hire, onboard, and manage Canadian employees, the internal team at ABC Tech can focus on their product launch and market entry strategy. As a result, the company will be able to enter the Canadian market quickly, easily, and cost-effectively.
Scenario 2: Long-Term Growth In a New Market
XYZ Manufacturing, a large manufacturer based in the U.K., wants to expand its operations to Canada. Initially, the company would like to hire 20 to 30 employees in Canada. However, over the next five years, they aim to set up a new manufacturing facility and hire a substantial number of local staff. XYZ Manufacturing has a large team of HR, legal, and financial professionals.
Is an EOR right for this business? No.
In this case, XYZ Manufacturing has sufficient resources to establish a foreign entity. Therefore, setting up a subsidiary in Canada is the best option. Doing so will give them direct control over operations, allowing for greater customization in HR policies, procedures, and benefits. It will also help them build a strong company culture and a more permanent presence in Canada. Although it requires a considerable initial investment and more administrative effort, the long-term benefits of setting up a subsidiary outweigh the advantages of using an EOR.
An Overview of Employer of Record Pros and Cons
Below is an overview of the pros and cons of working with an EOR.
Benefit from EOR Services with Thirdsail
Is your business looking to expand into Canada without investing the significant resources required to establish a legal local entity? As one of the best EORs in Canada, Thirdsail can help.
Our team of legal, financial, and Canadian employment specialists will do the heavy lifting - so you can utilize your internal resources elsewhere. With the help of our streamlined processes and convenient tools, we’ll manage employment contracts, onboarding, payroll, employee benefits, worker’s compensation claims, taxes, contract terminations, and more. Backed by years of experience, our team guarantees compliance with local regulations and labor laws, so you can rest assured your business and employees are in good hands.
