What an Employer of Record Actually Does
An Employer of Record, usually shortened to EOR, is a licensed local company that becomes the legal employer of your staff in Vietnam on your behalf. The EOR signs the labor contract, runs payroll in Vietnamese dong, withholds personal income tax, and pays social, health, and unemployment insurance contributions. Your company keeps full control over the person’s actual work: what they do day to day, who they report to, and how their performance is managed.
This split matters because Vietnam’s Labor Code requires a registered local entity to sign labor contracts and file social insurance on an employee’s behalf. Setting up that entity typically takes around two to three months. An EOR provides that local entity immediately, so you can bring someone onto payroll in days rather than months.
Global providers describe the arrangement the same way: the EOR owns the legal and compliance relationship with the employee, while the client company directs the work itself.
EOR vs PEO: The “Co Employment” Myth in Vietnam
In countries like the US, a Professional Employer Organization operates under a co employment structure, where legal employer liabilities are shared between the PEO and the client company. That structure does not carry over to Vietnam.
Vietnamese labor law recognizes a single legal employer on record for any given worker, not a shared or split employer relationship. This has a practical consequence for foreign companies evaluating their options:
If you do not have a Vietnamese entity, a PEO is not a workable path. You need an Employer of Record instead, where the EOR is the sole legal employer and carries full legal, payroll, and statutory liability on its own.
If you already have a Vietnamese entity, what gets marketed as “PEO” in Vietnam is really HR and payroll outsourcing. The provider handles processing, filings, and administration, but your entity remains the legal employer under local labor law and carries the liability that comes with it.
EOR vs PEO vs Setting Up Your Own Entity
These three options get confused constantly, and the difference comes down to who holds legal liability.
Employer of Record. The EOR is the sole legal employer. It carries full responsibility for compliance, tax, and statutory contributions. You do not need a Vietnamese entity at all.
Professional Employer Organization. As covered above, a PEO only works if you already have a Vietnamese entity, and that entity stays the legal employer. It’s HR and payroll outsourcing, not a way to hire without an entity.
Your own entity. Registering a single member LLC or other entity gives you full control and, over time, lower per employee cost as headcount grows. It requires more setup time and ongoing compliance obligations of your own, including the registration, licensing, and reporting steps that apply to any foreign invested company in Vietnam.
For a company hiring its first one to three people in Vietnam, an EOR is usually the fastest compliant path. For a company already committed to the market with a growing team, moving to your own entity is usually the better long term economics.
Who Actually Needs an EOR in Vietnam
An EOR fits a narrow but common set of situations:
- Testing the Vietnamese market before committing to full entity registration, allowing companies to validate demand and operations quickly
- Hiring a small team while entity registration is pending, so staff can begin work immediately without waiting for paperwork to be completed
- Converting existing contractor relationships into compliant employment, where misclassification risk has become a concern
- Bridging the gap between deciding to enter Vietnam and completing entity registration, so hiring does not wait on the registration timeline
For companies hiring their initial staff, an EOR is typically the fastest, most compliant path. As headcount grows, the choice between maintaining an EOR and setting up a legal entity becomes an operational trade-off: balancing lower unit-employee costs against the administrative overhead, tax filings, and legal liabilities of running a direct subsidiary.
What the EOR Handles on Your Behalf
A compliant EOR arrangement in Vietnam typically covers:
- Drafting and signing a labor contract that meets Labor Code requirements, generally in Vietnamese with a bilingual version for the foreign client’s reference
- Monthly payroll in VND, including calculation and withholding of personal income tax
- Registration and contribution to social insurance, health insurance, and unemployment insurance
- Statutory leave, probation period limits, and termination procedures under the Labor Code
- Work permit sponsorship where the hire is a foreign national, filed with the relevant labor authority
None of this removes your responsibility to understand what you are agreeing to. Reviewing the EOR’s contract templates and confirming their insurance filings are current is reasonable diligence, not micromanagement.
The Compliance Risk of Getting This Wrong
The most common mistake Forra sees is not choosing the wrong model outright, but drifting into a grey zone: paying someone as a contractor when the actual working relationship looks like employment. Vietnamese labor authorities can reclassify a contractor relationship as employment retroactively, which triggers back payment of social insurance contributions, penalties, and potential tax exposure for both the foreign company and the individual.
Before signing with any EOR provider, ask to see their Vietnamese business license and confirm it covers the services they are offering. Keeping a copy on file is reasonable diligence and resolves most of the exposure described above.
