Expanding your business internationally is a bold step that opens new opportunities. Whether your goal is to tap into a global talent pool or build teams across multiple countries, one critical decision shapes your expansion strategy. Should you partner with an Employer of Record (EOR) for quick, compliant hiring, or establish your own legal entity to manage employment directly under local laws?
Before selecting a model, it’s essential to understand how each one impacts cost, control, and compliance. This blog post will guide you through the critical points in EOR vs Entity setup, as well as the difference between EOR and entity setup. It will analyze the entity setup versus the employer of record cost, empowering you to make an informed comparison.
Next, we have the situation of EOR vs the company’s own entity. Let’s walk you through the situation of hiring employees through EOR vs entity setup. Ultimately, you will have understood which option best suits your global recruitment strategy and how the global HR platform WorkMotion can facilitate it.
Defining EOR vs Entity Setup
What is an entity setup?
When you set up your business abroad, it means you form a legal business structure (subsidiary, branch, or local business) in your target country. It involves registering your business with the relevant authorities and establishing a business account with a reputable banking institution. You are the legal employer responsible for all compliance.
It is typically referred to as an entity setup or a company-owned entity when discussing global expansion.
What is an Employer of Record?
An EOR is a third-party service provider that assumes the legal employment status of your global employees in the destination country under your supervision. You will not need to form a legal entity in the host country. It is the EOR that handles contracts, employment, taxes, social security contributions, and benefits.
The provider becomes the legal ‘employer of record’ for employment law and payment processing. The employee still works for and reports to you, but the EOR handles all compliance worldwide.
Why the EOR vs Entity Setup Decision Matters.
Comparison between entity setup vs employer of record means comparison between two hiring models globally:
- The entity route: You build (and sustain) your legal framework.
- The EOR route: you subcontract this infrastructure to a specialist.
In comparing EOR vs entity payroll, payroll and compliance emerge as the most significant cost and risk factors. And with the entity setup vs employer of record pros and cons, it is apparent that they recognize it is not just a question of cost, but also time, risk, and control.
Why Companies Face This Choice
When expanding their reach worldwide, companies always wonder:
- How quickly can we hire that engineer in Spain (or Germany or Brazil)?
- Do we need a local entity at this stage?
- What amount of legal risk and paperwork are we assuming?
- In the context of adopting the entity approach, can we easily transition from EOR to an entity at a later stage?
The truth is that in many cases (and especially for scale-ups or companies expanding to numerous countries simultaneously) it is not only pricey to open their legal structure in every new market, but it can also take a long time. One of the most significant benefits of EORs is their speed and efficiency.
Align your hiring strategy with your business goals. For example, are you market testing or continuing with extensive hiring? Also, verify that you have the necessary human resources and financial support. All such questions help you determine whether it is EOR or an entity.
When Setting Up an Entity Makes Sense
Now, let’s consider the situation of creating your own entity abroad. These are the motivational factors for entity setup vs employer of record solutions.
Advantages of Forming an Entity
- Complete Control: It is your corporation, your contracts, your pay, your benefits, your policies.
- More substantial local presence: Leveraging a local brand can help improve your market position and create a sense of commitment to customers.
- Scalable and cost-effective: In situations where your organization hires thousands of employees within a country, the hiring cost of the structure itself can be advantageous to your organization, as it avoids EOR charges.
- Strategic Asset: You’re creating a long-term operational footprint (sales, service, R&D) versus simply hiring a remote employee.
Disadvantages of Entity Setup
- High setup costs and time: This involves significant expenses associated with establishing a legal entity in the target country.
- Ongoing Administration: As a global employer, you must now manage employment expenses, tax returns, and labor laws—and that requires specialized expertise.
- Higher risk of employee misclassification and non-compliance: Failure to consider every detail could result in a fine or even lead to the closure of your business.
- Lack of flexibility to scale up or down quickly: It is challenging to scale up or down rapidly in response to sudden market changes. It is more expensive to close an entity than to form it.
- Opportunity cost: The time spent developing infrastructure is time not spent on developing your product or acquiring customers.
When It Makes Sense
- While you plan to scale with multiple employees in the country, you have a longer-term focus.
- You require full local operations, including brand, sales, and legal.
- You believe in the market and your dedication to it.
- You have the internal team or budget to support entity administration.
In such examples, the entity setup vs employer of record debate can definitely lean in favor of the “entity route.”
When EOR Is the Smarter Choice
Let’s consider the reasons why companies might adopt the EOR model. It is because the question “Employer of record (EOR) or establish your own entity?” is one that EORs can usually answer “yes” to.
Advantages of EOR
- Quick market entry: You can hire in days, not months. For example, with WorkMotion, you can hire in more than 160 countries.
- Lower upfront cost: As you’re not creating or administering an entity, there is no setup or infrastructure to pay for.
- Lower Risk of Compliance: The EOR assumes the legal liability as the employer. For example, WorkMotion hires, onboards, and pays your talent while you manage their work.
- Flexibility: A market test is easy to scale back if something changes. Creating a local organization is a more challenging endeavor.
- Single interface globally: A platform like WorkMotion provides a single global interface for contracts & payroll. You won’t require HR/legal teams in every country.
However, the EOR model also has a few limitations to consider.
Disadvantages of EOR
- Less Control: Since your legal employer is the provider, you may have less flexibility about your employment contract.
- Higher cost per head: Although there are no direct costs initially, the per-employee monthly subscription rate could be more expensive if it were a large organization with a large number of employees.
- Lack of local presence: EOR solutions may not be suitable if you require a comprehensive operational presence or a brand with a legal entity.
- Vendor dependency: You rely on your EOR provider’s expertise and coverage.
When It Makes Sense
- You are hiring a small number of employees or contractors in new markets and require rapid execution.
- “You’re testing multiple markets and you don’t want the fixed costs of setting up an entity in each place.”
- You lack your own legal/HR infrastructure or prefer not to develop it at this time.
You require global flexibility and demand one global payroll/compliance platform.
The True Costs of Setting Up Your Own Legal Entity
Many companies dream of expanding globally, but the reality of setting up a legal entity abroad is often more complex and more expensive than expected. What seems like a straightforward step toward growth can quickly turn into months of legal procedures, administrative hurdles, and mounting costs.
When comparing entity setup vs employer of record cost, it becomes clear that building your own legal infrastructure is both time-intensive and resource-heavy. You’ll deal with registration fees, legal consultations, and ongoing compliance—each carrying its own price tag.
Let’s take a simple example. A German marketing agency planning to enter the French market might need to:
- Pay legal fees: Hire local lawyers to handle incorporation and ensure compliance with French laws.
- Cover registration costs: Pay government charges for tax IDs, business registration, and permits.
- Manage translation and localization: Translate contracts, employee handbooks, and marketing materials into French.
- Handle ongoing compliance: File annual reports, pay taxes, and comply with French labor laws and social contributions.
Over time, entity management also becomes a long-term operational burden. You’ll need dedicated HR, finance, and legal teams to handle payroll, taxes, and local regulations. So before you commit, ask yourself: is it really worth it?
Below is a breakdown that highlights just how high the cost of setting up legal entity vs EOR can get when factoring in both setup and recurring expenses.
| Service |
Estimated Cost |
Timeline |
| Legal consultation & setup |
€2,500–€5,000 |
1–2 months |
| Incorporation fees |
€1,200–€3,000 |
2–6 months |
| Notarization |
€400–€2,000 |
1–2 months |
| Office rent |
€50–€1,300/month |
1–4 months |
| Local director services |
€250–€700/month |
1–2 months |
| Bank account opening |
€300–€1,000 |
3–10 months |
| Payroll setup |
€450–€1,000 |
2–4 months |
| Monthly accounting |
€250–€1,000/month |
Ongoing |
| Health & safety vendors |
€700–€9,000/year |
Ongoing |
| Employment contract drafting |
€2,000–€4,000 |
1–4 months |
| Legal, payroll & accounting support |
€2,000–€20,000/year |
Ongoing |
| In-house project management |
€3,000–€10,000/month |
Ongoing |
Total estimated cost: Between €13,900 and €62,000 per year, excluding internal staff and time investment.
When you consider the difference between EOR and entity setup, these numbers highlight why so many organizations start with an Employer of Record (EOR). An EOR helps companies hire employees abroad quickly, without the heavy setup costs or compliance burdens of managing their own legal entities.
Key Comparisons: EOR vs Entity Setup
Now, let’s take a closer look at what they look like in comparison, allowing you to see how to cross-reference your choice.
Comparison of Costs: Entity Setup vs Employer of Record
- Entity Setup: According to WorkMotion: “You may have to spend over €13,900 to €62,000 per year just to maintain your foreign entity.”
- “Another component is the setup costs. It is approximately USD 15,000 to USD 20,000. It can have yearly maintenance charges of approximately USD 200,000.”
- EOR: You pay a per-employee monthly fee in addition to their salary and benefits. The provider handles this. Some examples of EOR prices (as given on WorkMotion) range from approximately €549 per employee per month.
Explanation: “It is if you’re going into a country with 1-2 hires and looking for speed. EOR is much more affordable. But if it’s 50-100+ hires and it’s not a short-term stint, then setting up your own entity could be advantageous.”
Payroll and Compliance Burden: EOR vs Entity Payroll
As a business owner, you must develop or acquire your own local infrastructure for managing salaries, including salary payments, taxes, social security contributions, benefits, employment contracts, statutory submissions, and staying up-to-date with changes in employment law.
With an EOR, the provider manages payroll, taxes, and compliance infrastructure. For example, WorkMotion provides support for global payroll, including payment of salaries in local currencies, as well as taxes and social contributions.
Because of this, when you compare your own cost of entity vs EOR processing, you’re evaluating the effort your team makes versus the effort of the vendor.
Risk, Speed, & Strategic Flexibility: EOR vs Entity Setup
- Speed: Setting up entities can take months; EOR could facilitate hiring in days.
- Risk: Risk associated with setting up an entity (as employer) – transferred to a provider with EOR.
- Flexibility: EOR makes it easy to scale up or down. Entity structuring inflexibility.
- Control: The entity gives you complete control; EOR gives you operational control, but the legal structure remains with the provider.
These points summarize the main differences between EOR and entity setup.
Strategic Choice: EOR vs the company’s own entity
You can reframe “EOR vs the company’s own entity” as “Do I build or do I partner?” Ask yourself these key questions:
- How many employees will I hire in years 1, 3, and 5 in this country?
- Must I have a “local” organization for “local” sales/licensing?
- Is speed more important than local brand presence?
- Will I instead not establish regional HR/legal/payroll infrastructures at this point?
- What is the total cost (hidden and overt costs) for setting up entities over 3-5 years?
- Can I estimate EOR per-employee costs and compare them to the entity’s fixed + variable costs?
Many companies choose a hybrid route. Companies initiate with EOR to validate the market. After they cross a certain threshold (for example, 10 to 20+ employees), they switch entirely to setting up the structure and move out of EOR.
Case Scenarios: Which Choice for Which Company?
Scenario A: Startup hiring two engineers in Poland next quarter
- Objective: To test the market, hire quickly, and have low overhead.
- Recommendation: Use WorkMotion’s EOR to hire engineers in Poland within days, avoiding entity setup costs. You then experience flexibility and quickness.
Scenario B: Medium-scale SaaS business with a plan to assemble a 50+ person R&D team in Germany over 3 years
- Objective: To have the entire R&D team.
- Recommendation: Consider setting up the entity (or a hybrid approach, where you do EOR first and then convert) because, with 50+ employees, the costs of EOR vs entity setup will likely favor setting up the entity. At this scale, it is less expensive to be an entity.
Scenario C: Enterprise Expands to 10 More Countries with Teams of 5-10 Individuals Each
- Objective: Worldwide outreach. Effective recruitment to enter jurisdictions.
- Recommendation: EORs in each country represent the agile & cost-effective alternative. Entity incorporation in each country would be unmanageably complex & pricey. WorkMotion can facilitate recruitment in 160+ global countries.
Vendor/Provider Considerations: Choose Your EOR Provider Carefully
If you lean toward the EOR route, choosing the right EOR service provider is critical. For example, WorkMotion offers global payroll services.
Some questions to ask when assessing the provider:
- Do they have their legal business or business partners?
- What territories does it include, and to what extent is the level of compliance within those countries credible?
- What is their payroll accuracy rate, currency support rate, and salary payment record? (WorkMotion maintains high accuracy in global payroll and payments.)
- What is their price structure? Is it transparent with no hidden charges?
- What is their onboarding speed and automation? For example, WorkMotion can onboard in 10 minutes to produce contracts.
- What type of ongoing support does it provide, such as legal advice?
- What happens if you decide to change your mind and form your own business? How easy is this transition process?
A sound choice of EOR can sufficiently support the preference for EOR over entity in cases requiring quickness and flexibility.
Decision Checklist for Your Company
Here’s a checklist to help you decide:
| Question | Entity Setup | EOR |
| Will we have an extensive headcount (20-50+ people) in the market? | The entity could be viable | EOR likely better |
| Is our current position in this market short-term or experimental in nature? | The entity may be suitable | EOR preferred |
| Is there a requirement to have a full operational presence (sales force & office) in the market? | An entity may be required | EOR may suffice |
| Is there internal capacity (legal/HR/payroll) in the country? | Entity valid | EOR Better |
| Are we comfortable with high upfront investments and prolonged implementation times? | Entity route open | EOR safer |
| Do we have to hire immediately and not delay? | Entity tougher | EOR recommended |
| Are we equipped to handle ongoing compliance, audits, and local labor laws? | Entity route possible | EOR reduces risk |
If most of your answers align with the EOR column, the EOR model is likely the right choice for your current expansion phase.
How WorkMotion Aligns with Both Models?
WorkMotion is a global HR platform that enables companies to hire and manage talent worldwide without establishing local entities. It fully supports the EOR model and also assists with entity setup when needed.
Its key features:
- Legal Employment: This is when WorkMotion assumes the role of your legal employer. You take care of day-to-day operations.
- Country-Specific Contracting: It automatically provides contracts that comply with the laws of a specific country related to employment and taxes.
- International Payroll Management: This service handles monthly salary disbursements in local currencies, ensuring accurate and timely payments in each respective location. It encompasses taxes and social security contributions.
- Benefit Administration: Offers administration of statutorily required benefits as well as voluntary benefits like health care and benefits.
- Onboarding Support: Quick onboarding (days) with automated document processing and support for e-signatures.
- Compliance & Risk Management: This ensures your employees stay compliant with local regulations. It prevents misclassification. It also provides support for registration of entities in specific countries.
Thus, WorkMotion is there to support you, whether you are currently a fully outsourced entity or a transitioning entity at a later stage.
How to Decide
- If you require speed, low set-up costs, flexibility, and are hiring a small number of employees to enter a new market, EOR is your best option.
- If you have a strong dedication to employment size, tenure of operation, or market duration, require operation and/or branding in a locality → then perhaps setting up an entity is a better option.
- “And if there is still uncertainty, then one could consider a hybrid model in which one begins with EOR and then, at the scale and level of confidence attained, could transition to the entity model.
Always calculate the math: salary + benefits + service/overhead cost over 1 to 3 years for both models. Always consider time to hire, risk, service/compliance cost, and exit costs.
Choose the right provider: if EOR, they must have sound legal structures, country reach, transparency, speed to onboard employees, accuracy, and compliance with pay (WorkMotion provides for these).
Conclusion
To make the right choice between entity setup and EOR, consider factors such as headcount, market commitment, budget, control, risk, and speed. You must ask the right questions and develop your global hiring strategy accordingly.
When you’re ready, there are three main products offered by WorkMotion to cater to your global HR needs:
- EOR: Their Employer of Record service makes it possible for you to hire full-time employees globally, even in regions where you lack a legal structure.
- Direct Hiring: As companies in 21 countries target the European market, WorkMotion’s Direct Hiring product can help manage employment within those countries.
- Contractor Management: (If applicable) For global contractor management with easy compliance and payment processing.
Whichever route you choose—EOR or entity setup—WorkMotion ensures your global expansion is faster, compliant, and effortlessly managed.
Ready to hire your global team? Book a demo now!
