The "Direct Entity" Bluff: Direct EOR vs. Partner Network Risks

"We cover 180+ countries."

When an Employer of Record (EOR) salesperson tells you this, they are technically telling the truth. But they are omitting the most critical detail of *how* they cover those countries.

In the EOR industry, there are two distinct operating models, and the difference between them is not just semantic—it is the difference between **Legal Protection** and **Legal Exposure**.

1. **The Direct EOR (Owned-Entity Model):** The provider owns the legal entity in the country. They are the employer. 2. **The Partner Network EOR (Aggregator Model):** The provider is a middleman. They subcontract the employment to a local third-party firm you have never met.

Most "Global" EORs are actually Aggregators. They own entities in 10-15 major countries and farm out the rest to a patchwork of local vendors.

Here is why that matters for your risk profile.

## 1. The Broken Chain of Command (Legal Privity)

In a Direct EOR model, you have a direct contractual chain. You sign with the EOR (US), and the EOR (France) employs your worker. The EOR (US) and EOR (France) are the same corporate family. They share data systems, compliance standards, and insurance policies.

In a Partner Network model, the chain is broken.

1. **You** contract with **Aggregator EOR**. 2. **Aggregator EOR** contracts with **Local Partner**. 3. **Local Partner** employs **Your Worker**.

**You have no contract with the actual employer.**

If the Local Partner fails to pay taxes, or if they mistreat your employee, you cannot sue them directly because you have no "privity of contract." Conversely, if the Local Partner goes bankrupt (which happens), your employee is left in legal limbo, and the Aggregator EOR often points to the fine print: *"We are not the employer of record; the Local Partner is."*

## 2. The "Double Margin" Stack

Aggregators are businesses, not charities. They need to make a margin. The Local Partner also needs to make a margin.

When you pay $599/month to an Aggregator for an employee in Vietnam, the math often looks like this: * **Aggregator Fee:** $599 * **Cost paid to Local Partner:** $300 * **Local Partner's actual market rate:** $150

You are paying a premium for the Aggregator's dashboard, but the underlying service is being delivered by a low-cost local provider.

Worse, this "margin stacking" applies to **pass-through costs**. We have seen Aggregators mark up mandatory insurance premiums, severance payouts, and even expense reimbursements because they add a "processing fee" on top of the Local Partner's invoice.

## 3. The Compliance Black Box

When you ask a Direct EOR: *"Is this non-compete enforceable in Germany?"* their in-house German legal counsel answers.

When you ask an Aggregator, the process is a game of "Telephone": 1. You ask the Aggregator's support rep (in the US). 2. The rep emails the Partner Manager. 3. The Partner Manager emails the Local Partner in Germany. 4. The Local Partner replies (maybe in 2 days). 5. The rep relays the answer back to you.

Nuance is lost at every step. We have seen critical legal advice—like termination notice periods—get garbled in translation, leading to wrongful dismissal lawsuits.

Furthermore, you have no visibility into the Local Partner's compliance. Are they paying the taxes on time? Are they GDPR compliant? You have to trust the Aggregator's "vendor vetting" process, which is often more focused on *price* than *quality*.

## 4. The "Hostage" Situation

The most dangerous risk of the Partner Model is **Vendor Lock-in**.

If you want to leave a Direct EOR, it is a standard transfer. If you want to leave an Aggregator, you might find that the Local Partner *refuses to release the employee* until a dispute with the Aggregator is settled.

We have seen cases where an Aggregator stopped paying the Local Partner due to a commercial dispute. The Local Partner retaliated by withholding the employee's salary and refusing to process their resignation. The client (you) was held hostage in the middle of a fight between two vendors you thought were on the same team.

## Conclusion: Know Who You Are Hiring

There is a time and place for Aggregators. If you need to hire one person in a remote jurisdiction where no Direct EOR exists (e.g., Mongolia or Bolivia), an Aggregator is your only option.

But for your core markets—UK, Canada, Germany, Australia—you should demand a **Direct EOR**.

**The Litmus Test:** Before you sign, ask for the "Entity List." Ask specifically: *"In which of these countries do you own the legal entity 100%, and in which do you use partners?"*

If they hesitate to answer, you are walking into a Partner Network. Proceed with caution.