An Agent of Record (AOR) is a third-party service provider that contracts with a client company to formally engage, manage payment, and ensure compliance for independent contractors across different jurisdictions.
Unlike an Employer of Record (EOR), which assumes legal employment liability for full-time employees, the Agent of Record focuses exclusively on mitigating the risks associated with engaging non-employee contractors, primarily contractor misclassification risk and ensuring proper invoicing and tax documentation.
What Does an Agent of Record (AOR) Do?
The primary function of an Agent of Record is to act as the intermediary between a client company and an independent contractor, ensuring that the contractual relationship is legally sound and that payments are processed compliantly.
The core responsibilities of the Agent of Record (AOR) typically include:
Vetting and Classification of the Independent Contractor
This is arguably the most critical function. The line between an employee and an independent contractor varies dramatically from country to country, often based on criteria such as control, integration, and financial independence.
- The Agent of Record performs a deep, country-specific legal assessment (often called a Worker Classification Test) on the working arrangement to ensure the contractor genuinely meets the legal definition of self-employment in that jurisdiction.
- If the contractor fails the test, the AOR advises the client against the engagement or suggests an alternative compliant engagement method, such as an EOR relationship.
Contractual and Compliance Management
The AOR manages the service agreement between the client and the contractor.
- Compliant Service Agreements: Drafting and managing localized contracts for services that reflect local regulations, cultural norms, and the specific deliverables of the project, all while clearly defining the contractor’s independent status.
- Tax Compliance Documentation: Ensuring the contractor has the necessary local registration (e.g., VAT, business license) and managing the mandatory collection of tax identification and invoicing documents required for compliant payments.
Invoice Management and Disbursement
The Agent of Record streamlines the client’s global payment process.
- Consolidated Invoicing: The contractor submits their invoice to the AOR. The AOR then consolidates these payments and invoices the client company, simplifying accounting across multiple countries.
- Compliant Payment: The AOR manages the currency exchange and disbursements, ensuring the contractor is paid accurately and on time in their local currency. Importantly, the AOR ensures that the client is not directly handling the local contractor’s tax withholding or social contributions, which would signal an employment relationship.
Risk Mitigation and Liability
While the AOR does not assume employment liability (as they are not the employer), they assume liability for the compliance of the contractual engagement and the payment process.
- They protect the client from fines and back taxes related to misclassification, as the AOR’s rigorous classification process acts as a robust defense against government audits.
- They manage and handle the mandatory local reporting requirements for payments made to contractors.
Agent of Record (AOR) vs. Employer of Record (EOR): What’s the Difference?
Understanding the distinction between an Agent of Record (AOR) and an Employer of Record (EOR) is fundamental for any company engaging in global hiring. The difference lies in the nature of the relationship they manage: employment versus independent contracting.
| Feature | Agent of Record (AOR) | Employer of Record (EOR) |
| Relationship Managed | Independent Contractor | Full-Time Employee |
| Legal Status | Facilitator; Manages Service Agreement | Legal Employer |
| Compliance Focus | Contractor Classification, Invoicing, Tax Documentation | Payroll, Benefits, Tax Withholding, Labor Law Compliance (termination, leave, etc.) |
| Liability Assumed | Risk of Contractor Misclassification and Payment Non-Compliance | Full Employment Liability (HR, taxes, social security, statutory benefits) |
| Best For | Short-term projects, specialized expertise, and engaging talent that must remain non-employee. | Long-term roles, employees requiring statutory benefits (pension, healthcare), and roles requiring high control/direction from the client. |
In short, if a company needs to hire a full-time, integrated staff member in a foreign country, they need an EOR. If they need to hire a project-based, self-directed professional, they need an Agent of Record.
Frequently Asked Questions About the Agent of Record (AOR)
Why is using an Agent of Record (AOR) crucial for global compliance?
Engaging a global workforce without an Agent of Record exposes a company to two major risks:
- Contractor Misclassification: If a government auditor determines that your contractor should have been treated as an employee, your company faces steep financial penalties, back taxes for both the employer and employee share of social contributions, and even legal action from the worker for unpaid benefits.
- Permanent Establishment (PE) Risk: A non-compliant contractor relationship, especially one where the worker is acting as an integrated employee, can inadvertently trigger PE in the host country, obligating the client company to pay local corporate income tax. The AOR’s strict classification and management protocols help minimize these financial and corporate tax exposures.
Can an EOR company also act as an Agent of Record (AOR)?
Yes, many global HR outsourcing firms, including those that provide EOR services, also offer Agent of Record services as part of a comprehensive global workforce solution. A company like Kharis Global Group is positioned to offer both, providing flexibility to clients who have a mix of contractors and full-time employees globally.
Does the Agent of Record (AOR) pay the contractor’s local taxes?
The AOR manages the payment to the contractor, but the contractor remains responsible for their own local income tax, self-employment tax, and other statutory contributions as a self-employed individual.
- The AOR does not deduct these taxes from the contractor’s pay (as an EOR would for an employee).
- The AOR’s role is to ensure the contractor is correctly registered and documented to meet local tax authority requirements, thereby safeguarding the client company against any claims that the contractor was a “hidden” employee.
If I hire a contractor through an Agent of Record, can I still control their work?
This is a critical consideration for managing the relationship compliantly. The relationship with a contractor, even through an Agent of Record (AOR), must always adhere to the legal definition of self-employment. This typically means:
- The client defines the scope of work (the “what”) and the deliverables (the “when”).
- The contractor determines the method, tools, and schedule (the “how”).
Excessive control from the client over the contractor’s daily work schedule, tools used, or method of performance can invalidate the contractor status, regardless of the AOR’s involvement, and may still result in a misclassification finding. The AOR will advise the client on the correct boundaries to maintain the independent relationship.