Your first employer of record (EOR) invoice lands and it doesn't fit any category your books already have. It's from a vendor, but most of it is someone's salary. It's payroll, but no one is on your payroll system. Most startups book it wrong in one of two directions: the whole thing as "contractor expense" (which misstates headcount costs and confuses diligence later) or the whole thing as "software" (which is worse). Here's the common-practice way to book it, with a worked example.
One hedge before anything else: this is how startups commonly book EOR invoices, not authoritative GAAP guidance. Confirm the treatment with your accountant, especially if you're venture-backed and will face an audit or diligence.
What the invoice actually contains
A typical EOR invoice for one employee has three economically different things on it:
- Gross salary, passed through to the employee.
- Employer statutory contributions, employer-side taxes and social insurance the provider remits on your behalf, typically 10-70% of gross depending on country.
- The platform fee, the provider's own charge for being the legal employer and running payroll.
It may also carry a security deposit, benefits premiums, and an FX conversion. Each gets different treatment.
The pass-through is payroll expense, not a contractor bill
The salary and statutory lines are compensation for someone who works for you full time, under your direction. Common practice is to book them as payroll expense (salaries and wages, plus payroll taxes and contributions), usually in a dedicated account or class like "International payroll (EOR)" so they roll up with your other people costs. That keeps your fully loaded cost per head honest, which matters for burn math, board reporting, and eventually diligence.
What they are not: contractor expense. The EOR structure exists precisely because these people are employees, just employed by the provider's local entity rather than yours. Booking them as contractors makes your books tell a story your contracts contradict.
The platform fee
The provider's monthly fee (for example, $299 per employee) is the one part of the invoice that is genuinely a vendor cost. Startups commonly book it to software subscriptions or professional/payroll service fees. Pick one and stay consistent; the amount is small enough that the choice matters less than the consistency.
Deposits are an asset, not an expense
If your provider collects a refundable security deposit (often around a month of total employment cost), that money is still yours. Book it as an asset (a deposits or prepaid account on the balance sheet), not an expense. When it's refunded after offboarding, the refund clears the asset. If you expense deposits, your burn looks worse than it is in the month someone starts and better than it is forever after.
FX differences
If your EOR invoices you in USD, which is the common setup for US startups, there's usually no FX entry to make: the conversion happened inside the provider's rate, and the cost of that conversion is embedded in the expense lines you already booked. The thing to track is the rate itself. Record the FX rate the provider used each month (it should be on the invoice or receipt) so your bookkeeper can sanity-check the salary line against the employee's local-currency contract.
If you're invoiced in a foreign currency, book the expense at the rate on the invoice date and any difference at settlement to an FX gain/loss account. Small numbers, but auditors ask.
Accrual timing across payroll cutoffs
EOR invoices rarely line up neatly with calendar months: a provider might invoice in advance for next month's payroll, or the invoice for January's payroll might arrive in February. If you're on accrual accounting, book the expense in the month the work happened, not the month the invoice arrived. Prepaid amounts sit in a prepaid asset until the payroll month; invoices arriving late get accrued into the month they cover. If you're cash-basis, this all collapses to "when you paid it", which is one reason many early startups stay cash-basis until a fundraise forces the switch.
A worked example
One EOR employee: $3,000/month gross, statutory employer contributions of roughly 22% ($660), and a $299 platform fee, invoiced in USD. On the accrual for the payroll month:
| Account | Debit | Credit |
|---|---|---|
| Salaries and wages, international (EOR) | $3,000 | |
| Payroll taxes and contributions, international | $660 | |
| EOR platform fees (software or payroll service) | $299 | |
| Accounts payable, EOR provider | $3,959 |
When you pay the invoice:
| Account | Debit | Credit |
|---|---|---|
| Accounts payable, EOR provider | $3,959 | |
| Cash | $3,959 |
If the provider also collected a one-month deposit at onboarding:
| Account | Debit | Credit |
|---|---|---|
| Deposits held by EOR (other assets) | $3,959 | |
| Cash | $3,959 |
Account names are illustrative; use whatever your chart of accounts already calls these things, and confirm the mapping with your accountant.
What your bookkeeper needs every month
Three artifacts, filed together per month:
- The invoice, ideally itemized by employee and by line (gross, statutory, fee).
- The payslip or payroll report for each employee, so the gross and allowance lines can be tied to what the employee actually received.
- The FX rate used, from the invoice or receipt, so the USD amounts can be checked against local-currency contracts.
If your provider can't produce the second and third items, that's worth escalating; without them, your bookkeeper is booking a lump sum on faith.
No, you don't 1099 your EOR employees
This one causes real confusion every January. Your EOR employees are not your contractors: they're employees of the provider's local entity, working outside the US. You don't send them a 1099-NEC, and you don't collect a W-8BEN from them. Those forms belong to a different relationship, the one where you pay a foreign contractor directly.
Your payment relationship is with the EOR provider itself, a vendor. Whether that vendor relationship generates any US information-reporting obligation depends on the provider's entity type and your accountant's read; for most US-incorporated providers it doesn't, but ask your accountant rather than assuming. The rule of thumb: contractor paperwork follows who you pay directly, and with an EOR you pay the provider, not the person.
FAQ
Do I send a 1099 to my EOR employees? No. EOR employees are legally employed by the provider's local entity and are not your contractors, so no 1099-NEC and no W-8BEN. Those forms apply when you pay a foreign contractor directly. Your payment relationship is with the EOR provider as a vendor; confirm any reporting on that relationship with your accountant.
Is an EOR invoice a payroll expense or a contractor expense? Common practice is to split it: gross salary and employer statutory contributions go to payroll expense (often a dedicated international payroll account), and the platform fee goes to software or professional fees. Booking the whole invoice as contractor expense misstates your people costs.
How do I book the EOR security deposit? As an asset (deposits or prepaid, on the balance sheet), not an expense, because it's refundable money that is still yours. Clear the asset when the deposit is refunded after offboarding. Track the refund timeline; providers commonly take weeks after termination completes.
What should I ask my EOR for each month to keep clean books? An itemized invoice (gross, statutory contributions, fees, per employee), a payslip or payroll report per employee, and the FX rate applied. With those three, your bookkeeper can tie every line to evidence; without them, your international payroll is a lump-sum guess.