A candidate in another country has accepted an offer, but the company hasn’t decided whether it needs its own local business presence. The founder needs a way to employ that person now while keeping future options open.
An employer of record (EOR) is a provider that becomes the legal employer of your worker in a country where you have no entity. It issues the local employment contract, runs payroll and administers statutory benefits while your company directs the work.
A local entity is your own incorporated company in that country, which becomes the employer and carries the corporate obligations that come with it. There’s no universal break-even headcount: the right choice depends on the country, the roles, the hiring dates and the written quotes you obtain.
Key Takeaways
- An EOR suits hiring that starts before an owned entity is justified.
- A local entity suits a long-term operation that needs its own infrastructure, licenses or contracting capacity.
- Compare the steps to the first compliant payday, not just contract signature or company registration.
- Budget both routes over the same period, keeping service fees, employment costs and refundable deposits separate.
- If you plan to move from an EOR to your own entity later, have payroll, tax and benefits ready before the transfer date.
| Dimension | Employer of record | Your own local entity |
| Legal employer | The provider or its local partner | Your incorporated local company |
| Setup work | Provider onboarding, eligibility checks, funding | Incorporation, registrations, banking, payroll process |
| Recurring cost structure | Per-employee service fee plus employment costs passed through | Accounting, filings, payroll administration and internal time, plus employment costs |
| Control | You direct the work within the provider’s contracts and processes | You set policies, benefits and contracts within local law |
| Exit obligations | Employee termination entitlements plus provider notice terms | Employee termination entitlements plus entity closure or dormancy |
Employment Responsibilities: Who Owns What?
Both models involve employment obligations, and owning an entity adds corporate duties on top. Compare which responsibilities the provider takes on, which stay with your company and who will handle the administration.
EOR. The provider signs the local employment contract, processes payroll, handles statutory contributions and enrolls the employee in mandatory benefits. Your company still directs day-to-day work and manages tasks and performance, while the provider fulfills its duties as legal employer.
Your own entity. An incorporated local company is the employer, with the legal, tax, payroll and HR obligations that follow. Local accountants and payroll bureaus can handle administration, but UK guidance, for example, makes clear that directors stay legally responsible for the company’s records and accounts even when others manage the day-to-day work.
| Responsibility | EOR | Your own entity |
| Employment contract | Provider issues and holds it | Your entity issues and holds it |
| Payroll inputs and processing | You supply inputs; provider processes | You supply inputs; your entity or payroll bureau processes |
| Statutory benefits | Provider | Your entity, often with a broker or adviser |
| Day-to-day management | You | You |
| Corporate filings | Provider manages its own entity; assess your company’s separate obligations | Your entity, under local rules |
For either route, name someone inside your company to oversee the provider or local advisers. Record who supplies payroll inputs, who approves them and who checks that required administration is complete.
Speed: Compare the First Compliant Payday
Compare the steps between a signed offer and the first compliant payday. A quick contract signature or company registration says little about whether payroll, deductions, funding and benefits will be ready when the employee starts.
EOR readiness. Confirm the provider can employ someone in the proposed role and support any immigration requirements. Agree the employment documents, collect the employee’s personal and banking details, fund the first invoice or deposit and complete benefits enrollment, then check the provider’s payroll cutoff.
Entity readiness. You still need employment documents, employee data and benefits, plus incorporation, tax and social-insurance registrations, a bank arrangement and a payroll process with a named owner. Confirm payroll readiness separately from the company’s registration status.
A UK example. Setting up a UK limited company involves appointing a director, completing identity verification for directors and registering as an employer for PAYE before the first payday. Each is a separate task, so finishing one doesn’t complete the others.
An EOR can shorten the path to the first payday because you don’t need to set up your own employer first. Ask each provider or adviser for the outstanding tasks, owners and deadlines needed to meet the proposed payday.
Control: What Changes and What Risk Remains?
An owned entity gives you more direct control over employment arrangements. With either model, your company’s activities in the country still need legal and tax review.
Employment policies. With your own entity, you set policies and supplementary benefits, choose providers and handle performance and discipline within local law. Through an EOR, you work within the provider’s contract templates and processes, so ask early how it can accommodate a bespoke commission plan or unusual equity arrangement.
Provider dependence. Your employee’s contract is with the provider or its local partner, so changes to that arrangement may affect employment. Ask who the actual employing entity is in each country and which organization handles contracts, payroll, employee questions and any later transfer.
Remaining legal exposure. An EOR doesn’t settle whether your company has a taxable presence in the country. Under the OECD’s fixed-place test, a permanent establishment is a fixed place through which a business carries on its activities, and the OECD’s recent commentary on remote and home-office work depends on the treaty and the employee’s actual activities.
Review intellectual-property assignment, employee data handling, authority to sign customer contracts, immigration sponsorship and regulated activities separately. If the business needs local licensing or contracting capacity, ask advisers what structure those activities require.
Pricing: Compare the Full Cost Over Time
A provider’s monthly service fee and a government incorporation charge cover different things. Compare both models over the same period, using the same roles, start dates and headcount.
Costs both models carry. Include gross salary, employer social contributions, mandatory and supplementary benefits, equipment, recruiting and potential termination entitlements. Check the amounts under each model rather than assuming they’ll be identical.
EOR-specific costs. Include the service fee per employee per month and any add-ons, such as equipment handling, visa support or supplementary benefit administration. Track refundable deposits separately, since they tie up cash rather than adding operating expense.
Entity-specific costs. Include formation and legal advice, registrations, a registered address where required, accounting and annual filings, payroll processing, banking, insurance and internal time. Budget for closure too, since a government filing fee covers registration only, not the cost of running an employer.
Service fee versus total employment cost. Before comparing with your own entity, request an itemized quote that separates the provider fee from salary, employer contributions and benefits. Teamed’s employer of record, for example, starts from USD 599 per employee per month with zero FX markup and passes salary, taxes and benefits through at cost. Teamed hires in 187+ countries, gives every customer a named country specialist backed by real HR and legal experts, supports a contractor-to-EOR-to-entity path without re-onboarding and is rated 4.8 out of 5 on G2.
A planning formula. Over your chosen period, EOR incremental cost equals employee-months multiplied by the quoted service fee, plus any provider charges. Entity incremental cost covers setup, maintenance, payroll administration, internal staffing time and any closure costs.
A hypothetical illustration. Five employees retained for 12 months at a USD 599 starting fee produce 60 employee-months and USD 35,940 in service fees alone. That excludes salary, employer contributions, benefits, deposits and termination liabilities, so assign a cost to the entity-side work before comparing totals.
Switching to Your Own Entity: Protect the Employment Handover
If you expect to move employees from an EOR to your own entity later, plan the handover before setting a transfer date. Employees need clear information about what changes, and payroll, tax and benefits must stay covered throughout.
Readiness before the switch. Have the entity, payroll, tax, social-insurance and benefits arrangements ready before the employing party changes. If employer registration is pending or replacement benefits aren’t ready, resolve those gaps first.
Transfer mechanism. Confirm with local counsel how employment moves from the provider to your entity and whether consent, consultation or notice is required. In the UK, employees may be protected under TUPE when a business changes owner, but ask an employment lawyer whether it applies to your particular move.
What to review. Check recognized length of service, accrued leave, benefits that need replacing, intellectual-property and confidentiality terms, immigration status tied to the employer, year-to-date payroll figures and notice terms in the provider agreement. Explain any changes before asking employees to sign new documents.
Who owns each task. Assign responsibility for registrations, payroll setup, replacement benefits, employee communication and legal approval. Build the move into your wider expansion plan, and if you’re formalizing that plan, a roundup of business plan software can help structure the numbers.
The Better Choice Depends on the Country Plan
These hypothetical scenarios show how the operating plan can shape the choice. Each still needs country-specific cost and legal checks.
A small, dispersed team with uncertain expansion. Three employees work in three countries, none with a confirmed long-term plan. An EOR can be a practical fit, since separate entities would create corporate obligations for roles that might move or end.
A concentrated, long-term team with a costed entity case. A dozen engineers are planned for one country over several years, with written quotes for formation, accounting and payroll and an operations lead to oversee it. An entity may fit, though whether it lowers costs depends on those quotes and the ongoing internal work.
A business that needs a licensed or contracting presence. If customers must contract with a local company or the activity needs a license, establish what that means for the business structure. An EOR’s employment service doesn’t settle those questions, so get local legal and tax advice first.
A mixed-country strategy. A company may use entities where it has core operations and an EOR for hires elsewhere. Ask how your provider’s support would coordinate employment questions and transfers with your advisers as local operations grow.
Decision Checklist
Before committing to either route, document the following:
- Local activities: what the business must do in the country, such as selling, servicing customers, holding licenses or signing contracts.
- Hiring plan: the roles, planned start dates and expected employee-months.
- Written quotes: itemized costs for both models over the same period, with deposits listed separately.
- Ownership: the internal owner of the entity or provider relationship.
- Review triggers: which changes, such as headcount growth or local revenue, will prompt a fresh look, and when that review is scheduled.
Conclusion
An EOR lets you hire in a new country before an owned entity makes sense, while a local entity gives you direct control and the infrastructure for a long-term operation. Neither choice is permanent, and many companies start with an EOR and move to their own entity as a market grows.
Compare the first compliant payday, the responsibilities each route leaves with you and the full cost over the same period. Then set a review date so the structure keeps pace with your hiring plan.
FAQ
Is there a headcount at which a local entity becomes cheaper than an EOR?
There’s no universal number. Compare EOR service fees over your planned employee-months with the entity’s setup, administration, internal time and closure costs, using written quotes for the specific country.
Who directs the employee’s work under an EOR?
Your company does. The EOR is the legal employer and handles contracts, payroll and statutory benefits, while you set tasks and manage performance.
Does an EOR remove permanent-establishment risk?
No. Whether your company has a taxable presence depends on the treaty and what the employee actually does, so get local tax advice.
Can employees move from an EOR to our own entity without disruption?
Yes, with planning. Have payroll, tax and benefits ready before the transfer date, confirm the legal transfer mechanism with local counsel and explain any changes to employees in advance.
