Choosing Between EOR and Own Entity? Answer These 9 Questions First

There’s one key question every team needs to answer before they expand into a new country: How will you hire, pay, and manage an international workforce? Typically, the options come down to establishing a legal entity in your target market or using an employer of record (EOR). 

But making a final decision isn’t always easy. You have to consider scalability, speed to market, foreign compliance regulations, HR capabilities, exit strategies…

As it turns out, there are a few more questions you need to answer to find the best solution for your business. Explore them here.

Disclaimer: This content is provided for informational purposes only and should not be considered legal or tax advice. Please consult with professionals for guidance before taking any action.

Can your team manage diverse employment laws, tax regulations, and HR requirements?

Whether your team has the capacity, resources, and expertise to guide you on international compliance matters will make a significant difference in your approach to global expansion.

When you use an EOR, they become the legal employer of your workforce and take care of all things compliance. This transfers the burden of navigating local employment laws, tax regulations, and HR requirements to experts, strengthening compliance and minimizing legal risks without diverting internal resources.

If you’re establishing your own entities, you’ll need a comprehensive understanding of local regulations, which requires legal and accounting support from regional experts. 

In many countries, regulations differ depending on the state, age, or industry of the worker. For example, while Australia has one national minimum wage that applies to the entire country, the Fair Work Commission sets different minimum wage rates for adult, junior, apprentice, and trainee workers, with additional variations for specific industries and skill levels.

If compliance is not navigated meticulously, it can lead to legal complications, fines, and damage to your company's reputation. This could hinder your ability to attract and retain top talent and affect the overall success of your global expansion, as one in three people have turned down a job because of the company’s poor reputation.

Can you afford the upfront costs of opening an entity?

Establishing your own entity typically involves higher upfront costs, as well as high ongoing payroll and administrative expenses. For example, the estimated cost for entity set-up in France can range from $110,230 to $181,230, whereas the estimated cost of hiring an employee with Deel is $7,188 per employee, per year.

EOR services often come with predictable, transparent cost structures, making budgeting more straightforward. This is especially advantageous in the early stages of expansion when accurate financial planning is critical. By avoiding unexpected compliance-related expenses, you can allocate resources more efficiently, positively impacting your global hiring strategy.

Does your team have sufficient local market knowledge?

Aside from legal and tax nuances, understanding the local market, employee expectations, and culture is a critical factor in attracting top talent and building successful operations. This is particularly crucial for industries where cultural understanding and product-market fit play a vital role in the success of the business. By utilizing EOR services, businesses can benefit from the built-in local expertise and valuable knowledge that comes with it.

Establishing your new entity requires either internal expertise or external support to navigate the local landscape. Without adequate understanding, your company may face challenges in adapting to market nuances, potentially impacting your ability to attract top talent who value a company deeply embedded in the local context.

How quickly do you need to set up operations?

If you’re aiming for rapid market entry, EOR services will enable the quick deployment of resources without the extensive commitment of establishing your own legal entity. Say you wanted to set up operations in France. It would take you approximately three months to set up an entity and start hiring employees, while it would only take you five days to hire employees with Deel’s EOR. 

Quick market entry allows you to start building relationships with clients, partners, and international employees promptly, influencing the success of your expansion efforts.

In contrast, the time required to set up your own entity may result in missed opportunities, delaying your ability to establish a meaningful presence in the market. This could impact your ability to attract candidates, especially if competitors follow faster entry strategies and secure key hires before you.

How much direct control do you want over back-office operations?

By establishing an entity, you gain full control over workforce operations, allowing you to align recruitment, training, and engagement strategies with your company culture. 

This level of control can enhance employee satisfaction and retention, contributing to the long-term success of your global expansion. However, it requires a significant investment in HR resources and expertise, as you have to recruit, hire, and train an entire team. For example, the average annual salary for one Payroll Manager in France can range from $51,600 (USD) to $79,551, and up to $124,642 for more senior positions.

With an EOR, you can avoid the bureaucratic obstacles of global employment, comply with local labor laws, and reduce the strain on your HR and legal teams–all while providing an improved employee experience. It’s a hands-off approach to managing back-office operations, with services that include:

• Legal employment of your global and remote workers
• Creation of locally compliant employment contracts
• Background checks
• International payroll processing
• Collecting tax documentation and filing it in accordance with local tax laws
• Employee benefits and perks
• Intellectual property protection
• New employee onboarding process
• Contract termination

Learn more in our guide: Everything EOR: A Guide to Employer of Record

How long do you plan on staying in the region?

Companies use EORs for varying lengths of time, depending on their expansion goals. In many cases, companies that want to establish a long-term presence in a foreign country will, at some point or another, establish an entity there. 

While the setup of a legal entity demands more time and initial investment, it signals your stability and dedication to the region, which can appeal to partners and individuals seeking a well-established employer. 

When it comes to EORs, different countries have different laws dictating how long you can employ workers using this model. Most do not have defined limitations, but others, such as Germany, have legislation like the Temporary Employment Act, which imposes an 18-month cap on contracts between EORs and client companies.

If you’re planning on establishing a long-term presence in a country, you can use an EOR as a stop-gap in the process. Steve Hoffman, Senior Strategic Partnerships Manager at Deel, explains, “EORs can be strategically utilized to shorten transitional services agreements (TSAs) by bridging the gap of employment for when one entity is dissolved and the other is getting set up.” 

With this approach, companies can maintain their hiring momentum and productivity during global expansion.

See also: 5 Employer of Record Use Cases for Enterprise Companies

How risk-averse is your company?

Balancing risk is a key factor in successful global expansion. 

Opting for EOR services comes with lower risks, as you shift legal and operational responsibilities to the service provider. This is especially beneficial for global teams navigating unfamiliar local labor laws and tax regulations without in-house legal and accounting experts. At Deel, you’re supported by legal and accounting experts around the world.

Choosing to establish an entity requires a higher risk tolerance, as it involves assuming complete responsibility and liability for legal compliance and operational challenges. While this provides more control, it also requires a thorough risk management strategy that involves conducting thorough due diligence on legal and regulatory requirements in each target market, establishing contingency plans, and implementing rigorous compliance monitoring practices.

Remember: Compliance isn’t just about reacting to issues as they arise, but proactively identifying and addressing them before they escalate into significant challenges.

See also: Unlock Continuous Compliance with Deel’s Compliance Hub

What are your scalability requirements?

EOR partners offer maximum hiring flexibility, allowing you to scale your workforce quickly and efficiently in response to market demands. With this adaptability, your company can capitalize on emerging opportunities without the constraints of a more rigid business structure.

Let's explore a real-world scenario: Say your company experiences a surge of clients in Singapore, eager for your services. But there's a challenge—you don’t currently have a customer service team in the region or aligned with the local time zone.

With an EOR, you can swiftly set up a customer service team in Singapore, providing clients with timely assistance in their time zone and local language. In the end, you’ve not only resolved the immediate challenge but have also positioned your company to cater effectively to the growing demand in the region.

If you don’t use an EOR, you can:

Hire locally: Hiring customer service representatives directly in Singapore involves setting up a local entity and adhering to legal and compliance requirements. It offers complete control but demands time and resources.

Collaborate with a local partner: Forging partnerships with local firms specializing in customer service allows you to leverage their expertise and infrastructure, but you may not retain complete control of your processes.

Implement remote work: If feasible, allow your existing customer service team to work remotely from Singapore. While this minimizes the need for local entities, it requires robust remote work policies and technology.

Outsource to a third-party provider: Engage a third-party customer service provider with a presence in Singapore. This offers a middle ground between control and flexibility but necessitates careful vetting to ensure alignment with your business goals and values.

What is your ideal exit strategy?

Exit strategies often take a backseat to market entry. However, having a smooth disengagement process is just as crucial.

As an entity owner, you need to manage the disposal of assets, such as property or equipment, and settle any outstanding obligations, which can be a time-consuming and resource-intensive process. Handling the transition of employees can be complex, too, requiring compliance with local labor laws, severance agreements, and other employment-related considerations.

While having complete control over the exit is an advantage for entity owners, it's important to have a clear plan in place to minimize disruptions and safeguard your company's reputation. 

On the flip side, EOR services streamline the exit process. They handle HR, payroll, and compliance matters—including terminations—simplifying the transition for employees and reducing the burden on your team. Exiting with an EOR service often incurs lower upfront costs compared to an owned entity, further enhancing cost efficiency. 

Overall, the adaptability of EOR services allows companies to adjust their workforce quickly, ensuring compliance with local regulations during the exit.

See also: How To Begin The Termination Process And Offboard An EOR Employee

EOR or entity, you can do it all with Deel

As an all-in-one platform, Deel enables you to hire, pay, and manage your entire global workforce in one platform. With legal entities across 110 countries and counting, our EOR model simplifies international expansion by providing you with:

• Local payroll management, benefits administration, taxes, and compliance
• Competitive benefits packages tailored to each country
• Support from local HR and legal experts
• IP protection
• 20+ integrations for HR, Finance, and more

For clients transitioning from the EOR model to owned entities, Deel offers continued support through Entity Setup services and Global Payroll. Clients can customize their use of Deel services by using the EOR model for some locations, Global Payroll for others, and engaging independent contractors as needed.

To discuss your options with an expert, book a 30-minute demo with our team today.