When expanding into new countries, one of the most important decisions a company must make is how to legally employ people. The two most common option...
Editorial Team
Global HR Experts
When expanding into new countries, one of the most important decisions a company must make is how to legally employ people. The two most common options are setting up a local legal entity or using an Employer of Record (EOR).
Each model comes with different costs, timelines, risks, and long-term implications. This article provides comprehensive insights into both approaches, helping business leaders, HR teams, and finance executives make informed decisions based on strategy, budget, and compliance needs.
A local legal entity is a formally registered business presence in a foreign country, such as a subsidiary, branch office, or local corporation. Once established, your company becomes the direct legal employer responsible for all employment, payroll, tax, and compliance obligations.
An Employer of Record (EOR) is a third-party organization that legally employs workers on your behalf in a foreign country. While your company manages day-to-day work and performance, the EOR handles employment contracts, payroll, taxes, benefits, and compliance under local law.
Setting up a local entity involves both one-time setup costs and ongoing operational expenses.
These costs vary by country but commonly include:
In many countries, entity setup can cost $10,000–$50,000+ and take several months.
Once the entity is established, recurring costs include:
These ongoing costs can easily reach thousands of dollars per month, regardless of how many employees you have.
Operating a local entity also introduces compliance risks:
Managing compliance often requires local experts, increasing both cost and complexity.
The EOR model replaces entity-related costs with a predictable, per-employee pricing structure.
EOR providers typically charge:
There are no incorporation fees, no need for local accountants, and no entity maintenance costs.
EOR fees generally cover:
As a result, costs are transparent and scalable.
Using an EOR significantly reduces indirect costs such as:
For small teams or market testing, EOR is often far more cost-effective.
| Cost Factor | Local Entity | Employer of Record (EOR) |
|---|---|---|
| Setup Cost | High | None |
| Time to Hire | Months | Days |
| Ongoing Admin Cost | High | Included |
| Compliance Risk | High (self-managed) | Low (EOR-managed) |
| Scalability | Complex | Easy |
| Cost Predictability | Low | High |
This process can take 3–12 months, depending on the country.
This process can take days or weeks, with minimal internal effort.
However, these risks are often manageable and outweighed by speed and compliance benefits.
To make the right decision, consider:
Many companies adopt a hybrid approach—starting with an EOR and transitioning to a local entity once the market proves successful.
Regardless of the model, global compliance is critical:
An EOR provides built-in compliance expertise, while entities require ongoing investment in local legal and HR resources.
Choosing between setting up a local entity and using an EOR is a strategic decision that impacts cost, speed, compliance, and risk.
For many companies, especially during early expansion, EOR is the most efficient and cost-effective option.
This guide is designed to help business leaders, HR teams, and finance professionals evaluate costs, understand risks, and apply best practices when expanding globally.
By aligning your hiring model with your growth strategy, you can expand internationally with confidence, compliance, and control.
Trusted platforms to help you implement the strategies discussed in this article.
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