You’ve found the right candidate in a country where your company has no payroll or registered presence. Before you can confirm a start date, you need to decide who will be their legal employer, and that decision starts with what your business needs to do in that country.
An employer of record (EOR) becomes the worker’s legal employer while you manage their day-to-day work. A local entity lets your company employ people directly and run local business activities in its own name, subject to local rules.
Check legal and business requirements before comparing prices. If the role or activity requires your own company as the local employer, that decides the route; otherwise, compare speed, control, responsibilities and total cost.
Key Takeaways
- Choose an EOR when you need to hire soon, your expansion plans are uncertain and you don’t need to contract, invoice or hold licences locally in your own name.
- Choose a local entity when you need your own operating presence and can staff or outsource the administration that comes with being an employer.
- You direct the employee’s daily work under either model; what changes is the legal employer and who handles employment administration.
- An EOR doesn’t settle your company’s own tax position, so permanent-establishment risk still needs advice.
- Compare compensation, employer costs, service fees, setup and exit costs for the same country and hiring plan.
Employer of Record vs. Local Entity at a Glance
Both models let you direct the employee’s daily work. What changes is the legal employer and who is responsible for employment administration.
- Employment relationship. With an EOR, the provider issues the local employment contract, runs payroll, withholds tax and administers statutory benefits as the legal employer. With a local entity, your company employs the person directly and keeps the employer’s obligations, even if an accountant or payroll bureau handles the paperwork.
- Business presence. An EOR lets you hire without setting up your own employing entity, but it doesn’t create an operating structure or settle your company’s tax position. A local entity can sign leases, hold bank accounts, invoice customers and apply for licences, subject to local rules, after completing registration, banking and tax set-up.
| Dimension | Employer of record | Local entity |
| Legal employer | The EOR provider | Your company, through its local subsidiary or branch |
| Daily management | You | You |
| Employment administration | Provider handles contracts, payroll and statutory benefits | You handle them or hire local payroll and accounting support |
| Setup work | Service agreement, employment contract and onboarding checks | Registration, banking, tax IDs, payroll enrolment and governance appointments |
| Cost structure | Employment costs plus a per-employee service fee | Employment costs plus setup, administration and ongoing compliance |
| Exit responsibilities | Handle transfers or departures under local rules and the service agreement | Wind down payroll, settle liabilities and close or maintain the entity |
Speed to First Hire Depends on What’s Already in Place
An EOR can shorten the path to a first hire because the provider already has employment infrastructure in the country. With a new entity, you have to build that infrastructure first.
- EOR route. Confirm the provider can employ the person in the country and role you need. Onboarding can include contract drafting and signature, identity and right-to-work checks, and enrolment in payroll and benefits. Ask for a country-specific timeline covering contract completion, payroll readiness and benefit start dates, and ask what could delay the first payment.
- Entity route. Registration itself can be quick. GOV.UK states that a UK private limited company is usually registered within 24 hours of an online application, but that’s a registration milestone, not a promise that the company can run payroll immediately.
Depending on the country, further steps can include banking, tax registrations, payroll enrolment, governance appointments and locally compliant employment contracts. In the UK, Companies House requires identity verification for directors and people with significant control, so check how that applies to your filing.
For either route, assign an owner to every outstanding step. Ask for confirmation of the date the legal employer can actually pay the employee, alongside the date it can issue a contract.
Control and Employee Experience Involve Different Responsibilities
Using an EOR doesn’t mean handing over management of the team. It changes who handles the employment relationship and how you put employment decisions into effect.
- Daily management. Under both models, you set objectives, assign work, run one-to-ones and assess performance. You also decide on promotions or pay changes, and the legal employer then carries out the employment steps those decisions require.
- Employment decisions. With an EOR, proposed changes to salary, title, hours, leave or termination go through the provider for review under local rules. With an entity, your company must check that each change is lawful and carry it out correctly, and outsourcing payroll doesn’t remove those responsibilities.
- Employee support. Agree who answers payslip questions, approves contract changes, explains benefits, provides payroll records at tax time and handles disputes. Document the split between your team and the provider so the employee knows where to go from day one.
With an entity, the employee’s experience depends on the people and services you put in place. Avoid leaving a founder or manager responsible for unfamiliar local rules without a clear route to specialist help.
Compliance and Tax Risk Remain Country-Specific
An EOR takes on legal-employer duties within the applicable rules and its service scope. Your business still needs to assess its own tax and operating obligations.
- Employment obligations. An EOR handles the employment contract, payroll taxes, statutory contributions, mandatory benefits and termination requirements as employer. With an entity, your company holds those responsibilities, so agree who supplies information, approves changes and keeps records before employment begins.
- Business and tax exposure. Hiring through an EOR doesn’t settle whether your company has a taxable business presence in the country. A permanent establishment can arise without incorporating locally, depending on what your people do and where, and the OECD’s Model Tax Convention commentary treats home-office situations on their facts and circumstances.
If the employee will negotiate or sign contracts on your behalf, or run a sales operation, ask a tax adviser to assess those activities under the relevant rules. Share the employee’s actual responsibilities and working arrangements, not just the job title.
- Governance. Entities bring their own obligations. Singapore, for example, requires an incorporated company to have at least one ordinarily resident director, so check who will meet each requirement and what it will cost.
- Country checks. Before committing, ask qualified local advisers whether the role can be employed through an EOR, who will hold signing authority and whether immigration steps or licences are needed. Confirm how intellectual property created by the employee will be assigned to your company. This guide provides general information, not advice for a particular country or hiring situation.
Costs: Compare the Full Bill, Not the Service Fee
Build both budgets around the same country, compensation package, hiring schedule and time horizon. An EOR service fee and an incorporation filing fee cover different things, so neither gives a complete basis for comparison.
- Shared employment costs. Include salary, employer social contributions and payroll taxes, statutory benefits, paid leave accruals and any mandatory insurance. Use the same compensation assumptions for both routes, and ask for an itemised breakdown if a quote combines these costs into one figure.
- EOR-specific costs. Add the provider’s service fee, any extras for onboarding, offboarding, supplementary benefits or expenses, and currency-conversion charges. Record any payroll deposit separately so you can tell operating costs apart from cash that’s tied up but refundable.
Transparent pricing makes this comparison much easier. For example, Teamed’s employer of record starts from USD 599 per employee per month with zero FX markup, passes salaries, employer taxes and statutory benefits through at cost and itemises every line on the invoice. Teamed hires in 187+ countries, gives every customer a named country specialist backed by real HR and legal experts, and is rated 4.8 out of 5 on G2.
- Entity-specific costs. Include formation and registration fees, local payroll administration, bookkeeping and annual accounts, legal support for contracts and policies, and governance costs such as a resident director or registered office where required. Official filing charges are only a small part of that budget, so request itemised quotes from local accountants or corporate-services firms.
- Cash required upfront. Separate refundable funding from spending. An EOR may require a payroll deposit, while an entity may need share capital or a funded bank account before it can operate, so check the conditions for recovering each.
- Cost crossover. Compare the EOR’s recurring fees at your planned headcount with the entity’s setup and ongoing administration costs, including internal staff time, legal support and eventual exit costs. Calculate the crossover from your own assumptions rather than a published headcount threshold, and update it when the hiring plan changes.
Moving From EOR to Your Own Entity Takes Preparation
You can start with an EOR and set up an entity later, but changing the legal employer needs planning. Confirm what migration support the provider offers and which tasks your company must handle.
- Employer readiness. Before employees transfer, the entity needs the registrations, banking, payroll arrangements and employment documents required to employ them. Get country-specific advice on the transfer mechanism, and don’t assume employees must resign and be rehired.
- Employee protections. Some countries protect employees when their employer changes. In the UK, where TUPE rules apply, continuity of employment is maintained and the new employer can’t change terms because of the transfer itself, so ask a UK adviser whether your move qualifies.
- Payroll handover. Reconcile leave balances, accrued benefits, contribution records and employment documents between the employers. Agree a changeover date that lines up with pay periods, confirm who issues the final and first payslips, and keep access to historical payroll data.
- Exit costs. Check notice periods, offboarding charges and payroll-deposit return conditions, and agree how outstanding employer liabilities will be settled. Many international hiring mistakes come from rushed transitions, so build in time for each step.
The Better Option Depends on Your Hiring Plan
Use these scenarios as planning guides, then test them against the country’s rules, the roles and your budget.
1. A small team across several countries with uncertain growth may favor an EOR, since opening an entity in each country adds setup and governance work.
2. A sustained single-country operation that needs its own presence favors an entity, especially if you’ll sign local contracts, invoice customers or hold licences.
3. An existing entity with capable payroll support may already cover your needs, so identify the specific role or timing problem an EOR would solve first.
4. An uncertain expansion can justify an EOR with a scheduled reassessment, triggered by a hiring commitment, local revenue or a licensing requirement.
Document the following before committing:
- Country and eligibility: whether local rules allow the role to be employed through an EOR.
- Role and activity: what the employee will do and whether it could create a taxable presence or require a licence.
- Hiring schedule: expected headcount, start dates and duration.
- Business activities: whether you need to contract, invoice, bank or hold licences in your own name.
- Full cost: an itemised budget for each route, with refundable deposits listed separately.
- Internal capacity: who will manage employer obligations and coordinate local advice.
- Review date: when you’ll reassess the choice and what would prompt a change.
Ask a qualified adviser in the destination country to review eligibility, tax exposure and licensing before signing a service agreement or filing incorporation documents.
FAQs
What’s the main difference between an employer of record and a local entity?
With an EOR, the provider is the legal employer and handles contracts, payroll and statutory benefits while you manage the work. With a local entity, your own company is the employer and carries those obligations directly.
Does using an EOR remove permanent-establishment risk?
No. Permanent-establishment risk depends on what your people do in the country, such as negotiating or signing contracts, so get tax advice based on the actual role.
When does a local entity become more cost-effective than an EOR?
There’s no universal headcount threshold. Compare recurring EOR fees at your planned headcount with the entity’s setup, administration and exit costs over the period you expect to operate.
Can employees move from an EOR to my own entity later?
Yes, with planning. The entity must be ready to employ, and some countries protect employees’ terms and continuity during the transfer, so get local advice on the right mechanism.
