When reviewing a service agreement with an Employer of Record, pay close attention to the allocation of liability, the termination clauses, compliance with local employment law, and the cost structure. These four elements largely determine whether the collaboration runs smoothly and whether you as the client are adequately protected. The questions below provide a practical framework for critically evaluating any EOR agreement.
What elements are mandatory in an EOR service agreement?
A solid service agreement with an Employer of Record contains at least six core elements: a description of the EOR’s employer role, the terms and conditions of employment applicable to the employee, the allocation of liability, the termination provisions, the cost structure, and agreements on compliance with local laws and regulations. If any of these elements is missing, legal or operational risks quickly arise.
The EOR agreement lays the foundation for the entire three-way relationship: the employee, the EOR as legal employer, and you as the client who exercises day-to-day management. Specifically, the agreement must clarify who is responsible for salary payments, tax remittances, social security contributions, pension accrual, and insurance. In the Dutch context, this means, among other things, that the EOR must correctly arrange continued salary payment during illness (for up to two years, with a statutory minimum of 70% of the salary) and that the employee is entitled to an adequate pension scheme from the first working day.
In addition, the agreement must specify which terms and conditions of employment apply. These include not only salary and vacation days, but also secondary benefits such as a possible thirteenth month, leave arrangements, and training schemes. If the EOR is unable to join certain funds, such as training funds, contributions must be reserved in cash and paid out at least annually.
How is liability divided between the EOR and the client?
In an EOR arrangement, the EOR bears legal liability for everything related to the employer role: compliance with employment law, correct tax remittance, social insurance, and dismissal procedures. The client remains responsible for day-to-day management, task allocation, and working conditions on the work floor. This division must be explicitly stated in the service agreement.
In practice, this means the EOR bears the risk if something goes wrong in the area of compliance. If a fine is imposed due to an error in tax remittance, that falls in principle within the EOR’s responsibility. However, note that if the client provides incorrect or incomplete information — for example about the role or salary — liability may partially revert to the client.
Also check whether indemnification clauses are included in the agreement. These determine what happens if a third party, such as the tax authority or a dismissed employee, files a claim. A good service agreement with an Employer of Record distinguishes between damage caused by the EOR’s actions and damage resulting from the client’s instructions or decisions.
What are the risks of unclear termination clauses?
Unclear termination clauses in an EOR contract can lead to unexpected costs, legal liability, and delays when ending the employment relationship. If the agreement does not precisely describe who is responsible for the dismissal procedure, the notice periods, and the associated severance payments, you as the client risk financial surprises.
Local dismissal rules vary significantly by country. In the Netherlands, strict rules apply regarding continued salary payment during illness, reintegration obligations, and severance payments. If the service agreement does not specify how the EOR carries out these procedures and who bears the costs, a dismissal can turn out to be far more expensive than expected. Therefore, always ask for a clear overview of dismissal costs per country before signing.
Also look at the provisions for early termination of the collaboration with the EOR itself. Some EOR contracts include a minimum contract duration or high termination fees. If your business needs change or if the EOR fails to deliver quality, you want the freedom to switch without excessive costs.
How do you verify that an EOR complies with local employment law?
You verify an EOR’s compliance by including concrete guarantees and reporting obligations in the service agreement. Ask the EOR for proof of local registrations, request periodic compliance reports, and check whether the EOR has its own legal team or works with local experts. A reliable EOR is transparent about how it monitors and applies local regulations.
For the Dutch market, this means, among other things, that the EOR must be registered as a recognized sponsor with the IND if it employs highly skilled migrants from outside the EU. The EOR must also be aware of current income standards: for 2026, the salary threshold for highly skilled migrants is at least approximately €5,942 gross per month for employees aged 30 or older, and approximately €4,357 gross per month for employees under 30, excluding holiday allowance.
In addition to formal registrations, there are practical control questions you can ask:
- Does the EOR have its own legal entity in the relevant country, or does it operate through a local partner?
- How are changes in employment law incorporated into existing employment contracts?
- Who is the point of contact in the event of an employment dispute or a tax authority inspection?
- Can the EOR demonstrate that it correctly applies for and administers the 30% ruling for eligible employees?
An EOR that cannot answer these questions concretely is a risk to your international employees and to your business.
What must the agreement specify about costs and invoicing?
The cost structure in an EOR service agreement must be fully transparent. The agreement must at minimum specify the EOR’s management fee, indicate which costs are passed on to the client, and explain how invoicing works. Hidden costs are one of the most common complaints in EOR collaboration, so always ask for a complete cost overview in advance.
Typical cost components in an EOR agreement are:
- Gross salary of the employee, including holiday allowance and any bonuses
- Employer contributions, such as social security premiums, pension contributions, and insurance
- EOR management fee, often a fixed amount per month or a percentage of the gross salary
- One-time costs for onboarding, visa applications, or offboarding
- Pass-through costs for specific services, such as applying for the 30% ruling or support with employment disputes
Also check the invoicing frequency and payment terms. Some EOR parties invoice weekly, others monthly. Make sure the agreement also specifies what happens if errors occur in payroll processing and who bears the correction costs.
When is an EOR service agreement not the right choice?
An EOR service agreement is not the right choice if you work with self-employed individuals or freelancers, if you want to quickly hire a large group of employees in a country, or if you already have your own legal entity in the relevant country. In those situations, an EOR arrangement offers little added value and the costs are disproportionately high relative to the benefits.
For self-employed individuals and freelancers, there is no employment relationship, which means an EOR is normally not needed. If you use an EOR for someone who is effectively working as a self-employed person, this can actually increase the risk of misclassification rather than reduce it.
If your company is growing rapidly in a particular country and you expect to hire dozens of employees within a short period, it is often more cost-effective to set up your own entity. An EOR is ideally suited as an intermediate step: to get started quickly, test a new market, or facilitate an individual employee who wants to relocate for personal reasons. Once the scale increases, the costs of the EOR arrangement outweigh the costs of your own establishment.
Finally, an EOR agreement is not the right choice if the EOR has no demonstrable knowledge of the local labor market and regulations. An EOR that is unfamiliar with the specific requirements in the relevant country does not offer protection but actually increases compliance risk.
How Eastwing helps with your EOR service agreement
At Eastwing, we help companies that hire international employees or have employees working across borders. We guide you through evaluating and drafting an EOR agreement that aligns with Dutch laws and regulations and your specific situation. Specifically, we offer:
- Guidance in selecting a reliable EOR partner with the right local expertise
- Review of the service agreement for liability allocations, termination clauses, and cost structure
- Support with immigration processes, including the application for a highly skilled migrant permit through a recognized sponsor
- Advice on combining an EOR arrangement with the 30% ruling for international employees
- Ongoing support with changes in employment law that affect your EOR agreement
Would you like to know whether an EOR arrangement suits your situation, or would you like an existing service agreement reviewed? Contact Eastwing for a no-obligation conversation.
Frequently Asked Questions
Can I amend an EOR service agreement after it has been signed?
Yes, most EOR agreements can be amended through an addendum or amendment agreement, but this requires the consent of both parties. When signing, make sure the agreement contains a clear procedure for implementing changes, for example in the event of changes to the terms of employment or new legislation. Also ask whether the EOR proactively informs you when a change in law makes amendments to the contract necessary, so you are not caught off guard.
What happens to the employee if I want to switch EOR providers?
When switching EOR providers, the existing employment relationship must be terminated and a new employment relationship must be entered into with the new EOR, which has legal and administrative consequences for the employee. In the Netherlands, you must take into account notice periods, any transition payments, and the continuity of employment conditions such as pension accrual. Communicate with the employee in a timely and transparent manner, and ensure that the transition is properly secured contractually to avoid unnecessary legal risks.
How does the 30% ruling work in combination with an EOR arrangement?
The 30% ruling can also be applied when an employee is employed through an EOR, but the EOR must then be registered as a recognized sponsor with the IND and submit the application on behalf of the employee. It is important that the service agreement explicitly specifies who is responsible for applying for and administering the 30% ruling, and who bears the costs if the application is rejected or revised. Also check whether the EOR has experience correctly processing the tax-free allowance in payroll administration, as errors in this can lead to additional tax assessments.
What are common mistakes when concluding an EOR service agreement?
One of the most common mistakes is not reading the liability and indemnification clauses, causing clients to later find themselves responsible for costs they did not expect. Other common mistakes include the absence of agreements on error correction in payroll processing, failing to inquire about the total cost structure including one-time costs, and signing a contract with a long minimum term without an exit clause. Always have the agreement reviewed by someone with knowledge of local employment law before signing.
Is an EOR service agreement the same as a payrolling agreement?
No, an EOR service agreement and a payrolling agreement are similar but legally and operationally different. With payrolling in the Netherlands, the payroll company is the formal employer, but the employee is entitled to the same employment conditions as at the client itself (the so-called lightened employment law regime no longer applies). An EOR is typically used for international arrangements where the EOR acts as the local legal employer in a country where the client has no legal entity of its own. Always check which legal framework applies to your situation, as the obligations and risks differ considerably.
How long does it take on average to hire an employee through an EOR?
In most cases, an employee can be operational through an EOR within one to three weeks, depending on the country and the complexity of the situation. In the Netherlands, the lead time can be longer if a highly skilled migrant permit needs to be applied for, which takes an average of two to four weeks through the expedited IND procedure for recognized sponsors. Make sure the service agreement provides clarity on the onboarding procedure and the EOR’s responsibilities in this process, so that no unnecessary delays arise.
What should I do if the EOR fails to meet its obligations?
If an EOR fails to meet its obligations, the first point of contact is the escalation procedure that should be described in the service agreement. Document all shortcomings in writing and formally notify the EOR of its default in accordance with the agreed procedure. If the situation is not resolved, you may, depending on the contractual provisions, be entitled to claim damages or dissolve the agreement; therefore, when signing, ensure that the agreement already contains a clear complaints and dispute resolution procedure, including the applicable law and the competent court.
