A candidate in a country where your company has never employed anyone has accepted the offer. The role is budgeted, the manager is ready and a start date is pencilled in, but the business still needs a lawful way to employ and pay that person locally.
An employer of record (EOR) is an organisation that legally employs workers on behalf of another business. It is one route to hiring abroad; the other common route is to set up a local company and employ the person directly.
Choosing between them means comparing employment readiness, total cost, legal responsibility and employee support. Headcount matters, but the role and your commercial plans can matter more.
Key Takeaways
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An EOR becomes the legal employer while you direct the work; a local entity makes your company the employer.
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Plan around the first lawful working day and payroll readiness, not incorporation estimates alone.
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Compare total costs over 12, 24 and 36 months, not just the monthly EOR fee.
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An EOR doesn't replace licences, leases or a regulated operating presence.
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If you plan to move staff from an EOR to your own entity, confirm the transfer mechanism with local counsel first.
EOR vs Local Entity: Who Employs the Worker?
Under an EOR arrangement, the provider's local entity or employment partner holds the employment contract, runs payroll and administers statutory benefits. You keep control of hiring decisions, day-to-day work, performance management and team culture.
Under the entity route, your local company is the legal employer. It takes responsibility for employer registrations, filings and liabilities, even when advisers handle the administration.
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Dimension |
Employer of record |
Owned local entity |
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Legal employer |
The provider's local entity or partner |
Your local company |
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First-hire readiness |
Depends on provider coverage for the role and country |
Depends on incorporation, registrations, banking and payroll setup |
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Cost structure |
Employment costs plus a per-employee service fee |
Employment costs plus setup, recurring overhead and eventual closure |
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Employer administration |
Handled by the provider under the service contract |
Handled by your business and its advisers |
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Business presence |
Employment support only; local commercial requirements still apply |
A registered company that can hold licences and sign local contracts |
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Exit planning |
Employment obligations, service termination terms and any staff transfer |
Employment obligations, entity closure, deregistration and final filings |
An EOR can suit an exploratory hire, where headcount is small or uncertain and the business isn't ready to commit to the market. An entity can suit a committed local operation that needs a presence for reasons beyond employment.
Before letting team size decide, confirm whether the proposed work requires licences or an operating presence. The role and the country's rules can override any headcount rule of thumb.
Speed to the First Lawful Working Day
Claims that an EOR takes days and an entity takes months are too broad to plan around. Work out what must be ready before the person can lawfully start, and give each step an owner.
EOR route. Confirm the provider can employ this role in this country before promising a date, since coverage claims don't settle a specific role or immigration route. Then check identity and work-authorisation documents, contract approvals, benefits enrolment and the payroll cut-off for the first pay date.
Entity route. Incorporation is only an early milestone. GOV.UK says online company registration is usually completed within 24 hours, and Singapore's ACRA says most registrations are approved soon after payment, with complex cases taking up to 15 working days. Neither means the company is ready to employ someone or run payroll.
Country rules can also shift the timeline. Since 18 November 2025, new directors of UK companies must verify their identity before incorporating a company or being appointed to one, so ask a local adviser to build such steps into the plan.
An EOR already operating in the country may suit an urgent first hire because its employment infrastructure exists. Either way, track payroll readiness separately so the employee knows when their first salary will arrive.
Compare Total Costs, Not the Headline Fee
EOR pricing is usually quoted per employee per month, but that fee is one line in the employment budget. Compare both routes using the same employees, benefits, currency and planning period.
Costs under either route. Salary, employer social-security and pension contributions, statutory benefits and any extras you offer stay the same under both models. Put them at the top of the worksheet so the structural costs can be compared on their own.
EOR-specific costs. Include the service fee and any contractual extras, such as setup, currency conversion, termination or transfer charges. Some providers also require a deposit or advance payroll funding, so record refundable deposits separately because they affect cash flow rather than cost.
Built for startups and scaling companies, Teamed's employer of record hires in 187+ countries from US$599 per employee per month with zero FX markup. It covers local employment contracts, payroll, tax withholding and statutory benefits, gives every customer a named HR and legal specialist and is rated 4.8 on G2.
That starting fee excludes the employee's underlying employment costs. Zero FX markup also means no conversion charge from the provider, though exchange-rate movements can still affect a budget held in another currency.
Match like with like. An EOR fee and a payroll-only fee for countries where you already own an entity cover different responsibilities. Don't compare them as equivalent hiring costs.
Entity-specific costs. Include incorporation help, registrations, accounting, payroll administration, governance and eventual closure. From 1 February 2026, Companies House charges £100 for digital incorporation and £50 for a digital confirmation statement, while ACRA lists a S$300 registration fee for a Singapore local company.
Find your crossover point. Multiply the EOR fee by the employee-months in your planning period and add contractual extras. For the entity, add setup costs, recurring overhead and per-employee administration over the same period, then run both over 12, 24 and 36 months using your hiring forecast.
Control and Legal Responsibility
Managing the employee's work and carrying legal employer responsibility are separate questions. Business tax and licensing are separate again, even when one hire raises all three.
What the EOR takes on. The provider employs the person under a local contract, runs payroll and tax withholding, administers statutory benefits and handles the related employer registrations. Check the service agreement for the exact split, while day-to-day direction and performance management stay with you.
What the entity takes on. Your company assumes employer and corporate duties. In the UK, GOV.UK lists preparing annual accounts and filing the Company Tax Return among directors' responsibilities, with employment administration on top.
What you must still assess. Ask counsel about the employee's activities and authority, work location, immigration status, intellectual property and any licensing restrictions. An EOR isn't designed to replace local licences, office leases or a regulated operating presence.
Permanent establishment. A taxable business presence needs its own review. On 19 November 2025, the OECD updated its Model Tax Convention with guidance on cross-border home-office arrangements, and the outcome depends on the applicable treaty and the facts rather than on the employment model.
For either route, check how contracts allocate liabilities, including employment claims. Agree who approves sensitive decisions, such as disciplinary action or termination, before a case arises.
The Employee Experience Under Each Model
Employees need to know who signs their contract, answers payslip questions, approves leave and handles grievances or long-term sickness absence. Each of those needs a clear owner under either model.
Under an EOR, the provider's local entity or partner signs the contract and handles employment administration. Confirm how its specialists will work with your People team on routine questions and sensitive cases.
Under an owned entity, the contract is with your company. Your People team and local advisers need an equally clear split of duties, plus a route for issues a manager can't resolve.
Explain the employment relationship. Before the start date, tell the employee in writing which organisation employs them and which manages their work. A localised onboarding experience with clear contacts for pay, benefits and leave stops queries bouncing between manager and administrator.
Check support arrangements. Ask any supplier for a named escalation contact, documented response times and a written division of responsibilities. Hold an internal People team to the same standard.
Check systems. Payroll and HR data need to move between the employer's systems and yours. Ask which integrations are native for your stack, which records sync automatically and who corrects errors.
Plan the Move From EOR to Your Own Entity
Starting with an EOR and later moving staff to an owned entity is one route. An EOR can also stay the long-term arrangement where local rules and business needs allow.
Set review triggers. Revisit the decision when the hiring forecast changes, local commercial activity becomes established, contracts require a local party or the cost comparison favours an entity. A universal headcount threshold misses these differences.
Prepare the receiving employer. Before agreeing a transfer date, confirm the new entity has its employer registrations and a tested payroll arrangement. Some providers offer entity-management services covering incorporation, registrations and payroll readiness while you remain the employer.
Protect continuity. Ask local counsel to confirm the transfer mechanism, because employee rights depend on local law. In the UK, Acas explains that service history and contractual rights continue where a transfer falls under TUPE.
Include these items in the transfer plan:
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the transfer mechanism, confirmed by local counsel;
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employee communication before contracts or payroll change;
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treatment of service history and accrued leave;
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benefits enrolment with no gap in cover;
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payroll and personnel records the new employer can use;
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allocation of liabilities between the EOR, the business and the new entity;
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overlap and transfer costs, budgeted separately.
Which Model Fits Your Hiring Plan
These hypothetical scenarios show how role, commercial plans and timing can point to different choices.
A first specialist hire in an untested country. With one candidate, no local customers and no wider expansion plan, an EOR may fit while the business tests the market. Confirm no licensing or regulated-presence requirement demands a different structure.
A stable team supporting a committed local operation. With local customers, an office and growing headcount, an owned entity may fit because the business needs a corporate presence and direct control. If an urgent hire comes first, an EOR can bridge the gap.
An entity being set up while EOR employment continues. Plan any transfer with enough overlap for the entity to be ready before employees move. If transfer costs are high, existing staff may stay under the EOR while new hires join the entity.
Conclusion
The right route depends less on headcount than on the role, the country's rules and how committed you are to the market. Compare readiness, total cost and legal responsibility side by side before you confirm a start date.
Ask finance and legal to approve the country-specific plan, then record the chosen route, its assumptions, named process owners and the next review trigger.
FAQ
What is the main difference between an EOR and a local entity?
With an EOR, the provider is the legal employer and you direct the work. With a local entity, your own company is the legal employer and carries all employer obligations.
Is an EOR cheaper than setting up an entity?
It depends on headcount, country and planning period. Model total costs over 12, 24 and 36 months to find your own crossover point.
Can an EOR replace a local business presence?
No. An EOR handles employment, but local licences, office leases or a regulated operating presence may still require your own entity.
