Hiring across borders? You’ve probably come across terms like “umbrella company,” “PEO,” or “EOR.” Here’s what they actually mean, and how to know which one is right for your business.

By Anton van Heerden, CEO at DNA EOR

If you’ve Googled “how to legally hire someone in another country,” chances are you’ve stumbled into a forest of terminology: umbrella company, Employer of Record, PEO, agency of record, statutory employer and probably closed the tab just as fast.

Let’s demystify it.

While these terms often refer to similar services – helping companies legally engage workers in a country where they don’t have a local entity – the way they’re used varies widely by region. And understanding the difference matters, especially if you’re serious about getting your international hiring setup right.

Employer of Record (EOR): The Rolls-Royce of Global Hiring

Not sure who decided it needed to be called an “Employer of Record” (couldn’t we have gone with something cooler?), but if you’re building a global team, this is the gold standard. The Rolls-Royce. The no-stress, no-risk model that actually works.

An EOR is exactly what it says: they legally employ your remote hire on your behalf, in-country. That means your employee gets the protections and benefits they deserve, and you get to expand without opening an entity, guessing your way through compliance, or putting your business at risk.

Here’s what they handle for you: (South Africa as an example)

• Local employment contracts that meet labour law requirements
• Payroll, PAYE (tax), UIF, and benefits like leave, overtime and notice periods
• Statutory compliance with country-specific frameworks like the Basic Conditions of Employment Act (BCEA) in South Africa
• Onboarding, offboarding and even guidance through probation or disciplinary processes if needed

And what do you handle? The actual work. You manage your team member’s tasks, output, and performance – your EOR partner handles the paperwork and legal scaffolding that keeps everything clean.

Now, a word of warning:

Many companies still try to shortcut things by hiring international talent as independent contractors, especially in South Africa. We get it. It seems easier, faster, and cheaper.

But here’s the truth: if your “contractor” works only for your company, reports to your managers, uses your tools and follows your schedule, chances are they’re not a contractor under South African law. They’re an employee, and if you misclassify them, you could be looking at:

• Backdated tax liabilities
• Fines from the South African Revenue Service (SARS)
• Employee claims for unfair dismissal, unpaid leave or notice
• Brand damage (especially if former hires take to LinkedIn or local media)

Umbrella Company: A UK-Centric Term

If you’re hiring or contracting in the UK, you’ll likely come across the term “umbrella company.”

Staffing agencies or individual contractors typically use these. The umbrella company acts as the worker’s legal employer, but the worker is often placed on different assignments across various companies, much like a temp agency setup.

The model exists to navigate UK-specific tax frameworks like IR35, which targets “disguised employment.” A contractor may work for you day-to-day, but their salary, benefits, and tax are handled by the umbrella.

• Used most commonly in: United Kingdom
• Often involves: Short-term contract workers, agency workers, freelancers.
• Watch out: Umbrella companies are not the same as full-scale global EOR providers. They often serve the contractor more than the client business, and compliance outside the UK can vary widely.

PEO (Professional Employer Organisation): Mostly Used in the US

In the United States, the term PEO (Professional Employer Organisation) is the go-to, but it’s not quite the same as an EOR.

A PEO enters into a co-employment relationship with your company. That means you still need to have a registered business in the US, and the PEO shares the employer responsibilities with you.

It’s ideal for domestic US companies needing HR, payroll and compliance help, but it won’t help you hire legally in countries where you have no entity.

• Used most commonly in: United States
• Limitations: Does not help with international hiring unless paired with a Global Employment Provider
• Good for: US-based companies scaling domestically

So… What Should You Look For?

Here’s where it gets simple: no matter what it’s called – umbrella company, EOR, PEO, or anything in between – here’s what matters:

• Does this partner legally employ workers on my behalf?
• Do they ensure full compliance with local labour law?
• Do they handle payroll, tax, contracts, leave, and benefits correctly?
• Do they understand the local context, and not just run a platform?

If the answer is yes, you’re in the right place.

Suppose they only offer tech tools or serve as a pass-through agency. In that case, you may expose your business to risk, especially in countries like South Africa, where contractor misclassification and labour law breaches have real legal and reputational consequences.

Pro Tip
When comparing providers, look at how they’re structured in the country you want to hire in. Ask:

• Do they have people on the ground?
• Can they advise me on country-specific hiring practices?
• Will they help me recruit, onboard and retain talent, or just run payroll?

Last Thought

You don’t need to master the global employment model dictionary, but you need to understand the basics.

If you’re hiring in South Africa or other emerging talent markets, make sure you’re working with a true Employer of Record who knows the local rules and doesn’t just offer a plug-and-play tech platform – with no real human support when you have questions.

We’ve helped dozens of global businesses navigate these waters. If you’re confused about which model fits your business, we’ll walk you through the options – no jargon, no pressure.