5 Significant Cost Savings of an Employer of Record vs. Entity Setup

Expanding into global markets is an exciting milestone but often comes with significant costs in time, resources, and compliance risks. Establishing legal entities in new regions can incur annual expenses ranging from thousands to millions of dollars due to local tax laws, payroll processes, and administrative requirements.

Deel Employer of Record (EOR) provides a valuable solution. With over 110 established entities worldwide, Deel EOR allows companies to avoid the complexities of legal entity setup and streamline their global operations. By using Deel, businesses like Eucalyptus have saved up to 10% on hiring costs while speeding up market entry.

If you’re looking to scale globally without the financial and operational burdens of traditional methods, explore how Deel’s EOR solution can help reduce costs, minimize compliance and legal risks, and propel your organization forward.

What is an EOR?

EOR services act as a bridge between your business and your global workforce. The EOR becomes the legal employer, hiring your employees under their established entities, and is responsible for payroll processing, benefits administration, and compliance, allowing you to concentrate on core operations.

Think about everything your team can accomplish in a few months.

How many deals can they close?
How many new hires can they onboard?
How many objectives and key results can they achieve?

When you’re entering a new market, time is especially precious. If you’re spending months setting up an entity by yourself, you could lose out on profits and growth opportunities. However, with an Employer of Record acting as the legal employer, you can accelerate market entry and cut that time down to just a few days.

Here’s how you can cut the cost of global expansion by using an EOR instead of opening an entity.

1. Elimination of upfront expenses

Setting up a business entity involves various upfront expenses, as well as an investment of time and resources to understand the local tax, payroll, and employment laws. By using an EOR service, you don’t have to take on the costs associated with setting up and maintaining your own legal entities.

These costs can include:

• Registration fees
• Expansion experts for setup
• Legal fees
• Legal counsel hired for incorporation
• Fees for setting up documentation
• Signature and notarization
• Apostille
• Courier
• Legal representation to open the entity
• Employment agreements
• Minimal capital requirements
• Account fees
• Insurance setup (research, selection, contract wet ink signing)
• Registration with governmental authorities as a legal employer
• VAT registration
• Bank account setup (research, selection, incorporation documents to present and Know Your Customer process)
• Capital injection of the bank account
• Employee benefit setup
• Entity structure advice
• Entity address setup
• Tax structuring advice

Entity setup costs vary depending on location, industry, and local compliance requirements. For example, the estimated entity setup cost in Spain ranges from $60,000 to $120,000 (USD).

Discover how Clara expanded its business without increasing expenses with Deel.

See also: Top 5 Hidden Costs of Setting up A Foreign Subsidiary

2. Decreased risk of non-compliance fines and penalties

As the legal employer of your workforce, the EOR ensures adherence to local payroll tax regulations and labor laws. With this safeguard in place, client companies are effectively protected against tax and legal compliance risks, reducing potential fines and liabilities that can run from hundreds to millions of dollars.

For example, in 2021, oil and gas service company Holland Services misclassified 700 employees, which led to them owing almost $43,277,000 in back wages and damages. Leveraging the EOR’s expertise allows companies to expand globally with confidence, eliminating the need to invest in high fees and retainer costs for legal experts.

Discover how Cake saved +$3k per hire in compliance costs with Deel.

See also: Stay Ahead of Changing Regulations With These 3 Compliance Strategies

3. Lower administrative costs

Once your legal entity is up and running, a variety of administrative tasks come knocking, each carrying its own price tag. Post-setup, your company takes on the responsibilities of managing the workforce, payroll, and HR functions. This operational juggling act isn’t just time-consuming—it also comes with a hefty set of associated costs, such as:

• Cooperation taxes
• Cost to hire a payroll manager in each country to manage benefits
• Employment contributions (insurance, pension, social security, etc.)
• Director/Manager representation
• Medical exams
• Mailing address
• Health and safety training
• Onboarding of new employees: international employment agreement, review of compliance documents, redlines, registration of the employee with local authorities
• Employee off-boarding
• Salary payments

You can easily manage these responsibilities and costs by using an EOR, allowing your team to focus on core business activities and lowering your administrative overhead. Here’s an estimation of these costs if you were to hire employees in Spain:

As the client company, you pay a predictable annual EOR service fee per employee, bypassing the unpredictable costs and complexities of managing an entity independently. This predictability not only lightens the load for your team but also simplifies budgeting and expense forecasting.

Learn more about the specific costs in our guide: Cost to Set Up an Entity in Spain.

Discover how DevSavant saved $12k+ a month in admin costs.

4. Lower tech stack costs

Opening and managing an entity in each country of operation typically requires you to use several different platforms for human resources and payroll, which can often lead to duplicate functions and overspending. Using an all-in-one solution such as Deel simplifies your processes and helps cut costs significantly. Here’s how:

Integration and compatibility

When you’re managing multiple HR and payroll platforms across different countries, you’re bound to be met with incompatible systems and a lack of integrations. As a result, many teams are stuck with repetitive manual work that could be automated with the right solution.

With a global EOR like Deel, you get a centralized platform that wipes out compatibility problems thanks to 20+ integrations and a powerful API. No more wrestling with mismatched systems—instead, your team experiences less manual work and more time and money saved.

See also: 9 Deel Integrations: Make Payroll Easier for Your Startup

Standardized processes and data

Inconsistent processes and data not only drain resources but also lead to increased administrative costs as HR teams invest more time in reviewing and rectifying information. In fact, poor data costs US companies an average of $12.9 million per year.

The benefits of using an Employer of Record are that you harmonize processes and data on an international scale. This not only reduces the intricacies of managing varied systems but also paves the way for more cost-effective and efficient operations.

Discover how Paperform saved 104 days' worth of HR costs every year with Deel.

See also: Enhance Employee Experience with a Unified HR Tech Stack

Scalability and efficiency

Trying to use traditional HR and payroll systems as a global company can often hinder your company’s growth, leading to increased hiring costs and system upgrades—a major challenge for businesses aiming to scale up quickly.

Instead, you can propel your growth and bypass tech limitations by using a global EOR like Deel. Specifically designed for international HR and payroll, global EORs eliminate the need to expand in-house teams or incur high legal fees when navigating local labor laws and employment contracts in a new country.

Cost predictability

Hidden costs for system maintenance, upgrades, and licensing fees can eat away at your tech stack budget. When dealing with multiple platforms on a global scale, these expenses can easily snowball and surpass your budgetary limits.

But with a single EOR partner, you can consolidate these expenses into one, simplifying cost tracking, enhancing spending predictability, and helping you steer clear of unexpected financial surprises.

Check out Deel’s transparent EOR pricing structure, which includes:

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

5. Cost-effective new market entry

Using an EOR solution allows companies to quickly expand their global presence without the need for extensive legal and administrative setup. This flexibility is particularly beneficial for companies that want to test new markets or engage in short-term projects without committing to long-term establishment.

Let’s take Eucalyptus, a healthcare tech company that provides telehealth consultations, pharmaceutical delivery, and ongoing patient care in multiple countries, as an example.

After successfully setting up operations in the UK, the company was considering expanding its business in countries such as Germany. However, establishing an entity quickly and cost-effectively was challenging due to the language barriers, legal requirements, and labor regulations.

Deel's EOR enabled Eucalyptus to establish a presence in the German market, achieving this milestone in a third of the time it previously took them to set up entities.

Eucalyptus has also used Deel to expand its Philippines team to more than 100 full-time equivalent (FTE) global team members, saving between 5 and 10% on the costs compared to its previous business process outsourcing provider.

See also: How to Test New Markets and Accelerate Global Expansion with an Employer of Record

Consolidate your costs and processes with Deel

With legal entities in 110+ countries, Deel EORl enables you to hire employees quickly, compliantly, and cost-effectively. We handle all things compliance—contracts, minimum wage, terminations, and more—and manage tax deductions, pensions, benefits, and other payroll specifics, so you can focus on growing your business.

If you eventually choose to open an entity, Deel can provide you with Entity Setup services and Global Payroll support. You can customize your approach by leveraging multiple Deel services, such as using the EOR model for certain locations, opting for Global Payroll in others, and even hiring independent contractors when necessary.

Book a 30-minute product demo to learn more.