How EOR and AOR partnerships complete your contingent workforce program
Key Takeaways
- MSPs manage programs, not employment. Managed service providers coordinate your contingent workforce program, but they don’t typically become the legal employer or assume employment liability for your workers.
- Global scale creates compliance exposure. Worker classification rules, tax obligations, and labor laws vary by country. What’s compliant in one jurisdiction may create liability in another.
- EOR and AOR partnerships fill the gap. Employers of record handle employment liability for contingent employees. Agents of record manage compliance for independent contractors. Together, they provide the compliance layer MSPs need.
- The right model delivers risk reduction and efficiency. Programs that combine MSP coordination with compliance partnerships see measurable improvements in pass rates, onboarding speed, and cost savings.
Introduction
The contingent workforce continues to grow rapidly. According to a Ceridian survey, 65% of global company leaders plan to increase their use of contingent workers in the next two years.
For enterprises managing thousands of contingent workers across multiple countries, managed service providers (MSPs) have become essential. But here’s where many enterprise leaders get tripped up: MSPs excel at program management, but global payroll compliance requires specialized expertise that sits outside their core function.
Understanding where MSP responsibilities end and compliance partnerships begin is critical for managing risk at global scale.
What Is an MSP and How Does MSP Payroll Work?
A managed service provider (MSP) is a third-party organization that oversees your contingent workforce program. MSPs handle vendor management, requisition processing, reporting, and supplier coordination. They act as a single point of contact for your contingent workforce operations, but they don’t typically become the legal employer of your workers.
MSPs solve a real problem: managing complexity. When you’re working with dozens of staffing suppliers across multiple regions, you need someone to coordinate the chaos. MSPs consolidate those relationships, standardize processes, and provide visibility into spend and performance.
The benefits are clear. But here’s where it gets complicated: MSPs manage the program, not the employment. When a contingent worker shows up on day one, someone has to be the legal employer. Someone has to run payroll, withhold taxes, and ensure the engagement complies with local labor law. That “someone” usually isn’t the MSP.
Why Does Global Payroll Create Compliance Risk?
Global payroll creates compliance risk because employment laws, tax obligations, and worker classification rules differ in every country. A worker engagement that’s compliant in the United States may violate labor laws in Germany or trigger tax liability in Australia.
Consider just a few examples:
- European Union: Many countries presume employment status unless proven otherwise. Each country maintains distinct payroll rules and termination procedures.
- Asia-Pacific: Markets like India and Australia have complex tax structures and varied statutory benefit requirements.
- Americas: In the US, federal rules interact with 50 different state frameworks. States like California enforce stricter classification standards than federal law.
Worker misclassification is among the top compliance risks for global enterprises. The tests for classification vary by country, by agency, and sometimes by the type of law being applied. When classification goes wrong, the consequences fall on the enterprise: back taxes, penalties, benefits owed, and legal exposure.
Where Do Compliance Gaps Appear in MSP Programs?
Compliance gaps appear when enterprises assume their MSP handles all employment-related risk. MSPs manage programs and coordinate suppliers, but they don’t typically assume employment liability.
The cost of getting it wrong is significant. Worker misclassification remains one of the most expensive compliance failures for enterprises—and enforcement is intensifying worldwide. In the US, a major delivery app recently paid $24.75 million to settle misclassification claims. In the UK, HMRC’s IR35 enforcement has generated multimillion-pound assessments against major organizations. The Netherlands began actively enforcing false self-employment rules in January 2025, and Australia increased sham contracting penalties fivefold in 2024.
How Do EOR and AOR Services Work Within MSP Programs?
Employers of record (EOR) and agents of record (AOR) provide the compliance layer that makes MSP programs work at global scale.
The EOR becomes the legal employer of your contingent workers in each jurisdiction. The EOR takes on employment liability, handles payroll and tax withholding, manages statutory benefits, and ensures compliance with local labor law. For the enterprise, this means risk transfer: employment liability shifts from your organization to the EOR.
The AOR handles compliance for independent contractors. This includes classification evaluation, documentation, and ongoing compliance monitoring. AOR services reduce misclassification risk while preserving the flexibility that makes independent contractor relationships valuable.
In a well-designed program, each partner plays a distinct role:
- MSP: Manages the program, including vendor coordination, requisition flow, and reporting
- EOR: Handles employment for contingent employees, including payroll, benefits, and liability
- AOR: Handles compliance for independent contractors, including classification and documentation
The MSP continues doing what it does best. The EOR and AOR handle what they do best. Together, they create a complete solution: program efficiency plus compliance protection.
What Does This Look Like in Practice?
A Fortune 100 global consumer brand partnered with People2.0 to address evolving compliance requirements and inefficient IC processes across markets.
The enterprise faced a familiar set of problems: global legislation was evolving, internal processes were inefficient, and compliance exposure was growing. People2.0 implemented a comprehensive IC compliance program that combined rigorous evaluation with streamlined processes.
The results:
- 95% IC evaluation pass rate (46% improvement over the previous program)
- 3-week reduction in evaluation and onboarding timeline
- $450,000 in hard cost savings in the first year
- 500% increase in unique IC projects supported
- 141 managers actively using the solution across 21+ job functions
Read the full case study here.
The takeaway: rigorous compliance and operational efficiency aren’t mutually exclusive. The right partnership model delivers both.
What Should Enterprise Leaders Look for in a Compliance Partner?
Look for compliance partners with genuine global infrastructure, not just a network of third-party providers. Prioritize partners who assume liability, not just administrative tasks. Ensure they offer technology-enabled processes that create audit trails.
Questions to ask your current partners:
- Who is the legal employer for our contingent workers in each market?
- How are worker classification decisions made and documented?
- What happens if a worker is later determined to be misclassified? Who bears the liability?
- What audit trail exists for our classification decisions?
If the answers are unclear, or if “we assume the MSP handles it” is the best response, you have work to do.
Frequently Asked Questions
What’s the difference between an MSP and an EOR?
An MSP manages your contingent workforce program, coordinating vendors and providing reporting. An EOR becomes the legal employer of your contingent workers, handling payroll, benefits, and compliance. Most enterprise programs need both: the MSP for program management, the EOR for employment compliance.
Can an MSP handle global payroll compliance?
MSPs excel at program coordination but typically don’t assume employment liability or maintain deep expertise in local employment law across dozens of jurisdictions. Global payroll compliance usually requires partnership with EOR and AOR specialists.
What is worker misclassification and why does it matter?
Worker misclassification occurs when a worker is incorrectly categorized, such as classifying an employee as an independent contractor or misidentifying a worker’s exempt status. It matters because misclassified workers may lose access to protections like minimum wage, overtime pay, and benefits. For employers, it can trigger back taxes, penalties, legal liability, and reputational damage.
Conclusion
MSPs are essential for managing complex contingent workforce programs. But program management and employment compliance are different disciplines. The gap between them is where enterprise risk lives.
EOR and AOR partnerships fill that gap. They provide the compliance layer that makes global programs work, handling employment liability, ensuring proper classification, and maintaining the documentation that protects your organization.
People2.0 has helped organizations across 130+ countries navigate these complexities. Connect with our team to discuss your program.
