Employer of Record or Setting Up an Entity

Employer of Record or Setting Up an Entity: What’s the Right Move?

When you’re expanding into a new country, one big question comes up fast: should you use an Employer of Record (EOR), or set up your own legal entity?

Both options let you hire employees overseas. The difference lies in control, cost, speed, and long-term plans. Choosing the wrong path can slow you down or drain your budget. Let’s break it down clearly so you can decide with confidence.

What Is an Employer of Record?

An Employer of Record is a third-party company that legally employs workers on your behalf in another country. While your company manages the employee’s day-to-day work, the EOR handles payroll, tax filings, employment contracts, benefits administration, and compliance with local labor laws.

Think of it as renting infrastructure instead of building it.

EORs are popular with startups and growing companies that want to test a new market without making a long-term commitment. You can hire quickly, often within weeks, without registering a local company.

What Does It Mean to Set Up an Entity?

Setting up an entity means creating a legal business presence in the new country. This could be a subsidiary, branch office, or local corporation, depending on the jurisdiction.

When you establish your own entity, your company becomes the legal employer. You’re responsible for everything: payroll, tax compliance, employment contracts, benefits, reporting, and regulatory obligations.

This route gives you full control, but it also comes with higher setup costs and administrative responsibilities.

Speed and Flexibility

If speed matters, an EOR usually wins.

Setting up a legal entity can take several months. You may need to register with government authorities, open local bank accounts, appoint directors, secure office addresses, and meet capital requirements. In some countries, the process is complex and bureaucratic.

An EOR, on the other hand, already has the infrastructure in place. You can onboard employees quickly and scale up or down without dismantling a legal structure.

For companies exploring a new market or hiring a small number of employees, this flexibility is often the deciding factor.

Cost Considerations

At first glance, an EOR may seem more expensive because it charges a service fee, usually a percentage of payroll or a fixed monthly rate per employee.

However, setting up an entity comes with upfront legal fees, registration costs, accounting services, compliance management, and ongoing administrative expenses. If you only plan to hire one or two employees, those fixed costs can outweigh the EOR fee.

Where entities become more cost-effective is at scale. If you plan to hire a large team and operate long term in the country, owning your structure can reduce per-employee costs over time.

Control and Brand Presence

Setting up an entity gives you maximum control. You can customize employment contracts, design benefit structures, and establish a stronger local brand presence. It also signals long-term commitment to the market, which can matter for partnerships and investors.

With an EOR, you still manage the employee’s daily work, but legally they are employed by the EOR company. For most operational purposes this works smoothly, but it may feel less direct from a structural standpoint.

Risk and Compliance

Employment laws vary widely between countries. Mistakes can lead to fines, penalties, or legal disputes.

An EOR assumes much of the compliance burden. They stay up to date on local labor regulations, tax changes, and statutory benefits requirements. This reduces risk, especially for companies unfamiliar with the local legal environment.

When you set up your own entity, compliance responsibility falls entirely on your internal team or external advisors.

Conclusion

There is no one-size-fits-all answer. If you need speed, flexibility, and minimal upfront investment, an Employer of Record is often the smarter starting point. If you’re committed to long-term growth in a country and plan to build a substantial team, setting up an entity can provide greater control and cost efficiency over time.

The right choice depends on your timeline, budget, hiring plans, and appetite for administrative complexity. Start with your long-term strategy, then choose the structure that supports it best.