Article
7 min read
Cost Comparison: EOR vs. Opening an Entity
Employer of record
Global hiring
Author
Shannon Ongaro
Published
December 19, 2023
Last Update
December 12, 2024
Table of Contents
Upfront costs
Compliance costs
Administrative and operational costs
Flexibility and scaling
Risk management
Cost comparison: Own entity vs. employer of record services
Ongoing global payroll administration costs
Manage all entities in one place with Deel EOR
Key takeaways
- When a company opens a legal entity, they have to invest in set-up costs as well as continuous management costs.
- Employer of record services allow client companies to hire international employees more easily and with lower, more predictable costs.
- You can manage your entire workforce in one place with Deel, whether you have owned entities, use our EOR, or hire independent contractors.
Expanding your organization globally is an exciting milestone, but it involves complex decisions, particularly in hiring and managing employees in new markets.
Should you invest in establishing a legal entity, or opt for the flexibility of an Employer of Record (EOR) service? Making the wrong choice can lead to rising costs, compliance issues, and operational inefficiencies.
Deel leverages years of global HR, compliance, and payroll management expertise to help companies streamline their international hiring strategies while minimizing risks.
In this article, we compare the true costs of these approaches, highlighting why EORs like Deel often emerge as the more cost-effective and agile solution. By the end, you’ll see how Deel can deliver substantial savings, reduce compliance risks, and facilitate seamless scalability as you enter new markets or transition to a global workforce.
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.
Upfront costs
There are considerable upfront costs required to open a foreign entity. This includes paying setup fees, registrations, hiring legal, accounting, regulatory and expansion experts, and meeting minimum capital requirements.
There are also indirect costs, such as closing down a virtual or physical office, legislation and translation of documents, notary fees, courier fees, IPR, corporate secretarial, and more. These requirements can be a significant financial hurdle for any team, especially startups and companies with budget constraints.
While the cost of EOR services varies depending on the provider, the upfront costs are typically low as there are no entity setup fees required. Instead, EOR platforms usually charge a service fee per employee. These fees are typically more predictable than entity management fees, which can vary based on the business structure and regulatory requirements.
Compliance costs
Managing compliance for an entity requires continuous investment in legal consultations and other measures to navigate changing regulations. The responsibility falls squarely on the business, requiring oversight from in-house experts or outsourced practitioners that can cost hundreds of dollars per hour or thousands per month on retainer.
EORs provide client companies with built-in compliance management and in-house expertise. At Deel, this includes legal experts. This proactive approach reduces compliance risks and the associated fines and legal penalties, which typically cost 2.71 times more than maintaining compliance.
Administrative and operational costs
To support your new workforce, you'll need HR, finance, compliance, audit, and legal teams.
If you decide to set up an entity yourself, you can build an internal team by recruiting and training dedicated personnel who will handle payroll, HR, employee benefits, and more. This approach will give you direct control over your HR and payroll processes, but it also comes with the responsibility of investing time and resources in team development.
Forming and managing this team on your own can be costly. For instance, organizations in Canada with fewer than 500 employees spend an average of $1,289 (CAD) on HR for each full-time employee, excluding payroll staff. That’s $386,700 for a team of 300.
Alternatively, you can outsource these tasks to local HR and payroll providers. This approach takes less time but still requires additional resources and investment, as you may need to find a new provider for each entity you open.
By partnering with a global EOR, you can keep a low headcount, reduce the administrative burden on your existing team, and grow your company without having to manage multiple HR and payroll systems.
Flexibility and scaling
EOR solutions offer maximum flexibility for businesses looking to scale operations globally and test new markets without the commitment of opening an entity.
Take a country like France. If you establish an entity there, the people you hire—you’re going to have to pay pensions to them for the rest of their lives. It’s a huge liability. EOR is a great opportunity to test out new markets and make sure it works before you do invest and actually establish an entity.
—Steve Hoffman,
Senior Strategic Partnerships Manager
Opting for an EOR ensures a quick setup process, allowing businesses to focus on their core activities without the delays associated with legal and administrative procedures. For example, setting up an entity to hire employees in the UK typically takes one month, whereas hiring employees in the UK with Deel’s EOR takes two days.
As an all-in-one platform, Deel can support your company through every stage of growth. You can use our EOR model, hire independent contractors, or open an entity and run Global Payroll, all in one platform.
Exit costs
Dissolving an entity can involve long legal processes and financial implications, making the exit strategy a crucial consideration for long-term planning. For example, it takes at least three months to dissolve a company in the UK, not including any preparatory work.
The exact cost of closing an entity will depend on a wide variety of factors, including the length of existing contracts, the route to closure, outstanding liabilities, staff, debts due, and shareholder or member structure.
On the other hand, exiting an EOR arrangement is generally more straightforward. An EOR allows businesses to transition more seamlessly, with fewer legal complications and potentially lower exit costs. This process is streamlined further with Deel, as you can transition from one product to another without switching providers.
Risk management
Establishing an entity places the onus on your business to manage compliance and legal risks independently. This requires a risk management strategy and a deep understanding of local and international regulations.
When you employ top talent with an EOR, they become the legal employer of your workforce, while you retain day-to-day management responsibilities. This shared model helps distribute risk and ensures that businesses are not solely burdened with navigating legal and regulatory landscapes.
How Clara saves thousands of dollars per month with Deel’s EOR
Clara simplifies managing business expenses with an integral solution composed of corporate credit cards, a payment product, and a digital expense control platform.
Clara was founded during the pandemic in a virtual and remote work environment. From the beginning, they knew that talent isn’t tied to location, so they needed a solution to offer that same flexibility—without so many complications.
With Deel, Clara has opened themselves up to the possibility of savings at scale. Carolina Astaiza, Global People Director at Clara, explains:
”For global payroll, you would need a minimum of one software and one collaborator per country; this, on average, would cost us about $2,000 USD per month. Deel gives us economies of scale because it allows us to hire talent without additional costs,” she said. “Also, those $2,000 USD are not fixed; as the operation grows, that number grows.”
With Deel, Clara’s operating costs remain the same as they grow, never incurring exponential expenses.
Cost comparison: Own entity vs. employer of record services
Companies using an EOR to hire employees do not have to set up entities themselves, therefore they do not pay entity set-up fees. For companies setting up entities independently, the exact cost will depend on the entity’s location, number of employees, and compliance requirements.
Here’s an estimate of the employer costs (USD) required to set up an entity in the UK compared to using an employer of record.
Cost Category | Min (Entity) | Max (Entity) | Min (EOR) | Max (EOR) |
---|---|---|---|---|
Registration | $1,000 | $3,000 | $0 | $0 |
Expansion experts for setup | $1,000 | $3,000 | $0 | $0 |
Legal fees | $0 | $0 | $0 | $0 |
Legal counsel hired for incorporation | $1,000 | $3,000 | $0 | $0 |
Fees for setting up documentation | $1,000 | $3,000 | $0 | $0 |
Signature, notarization | $1,000 | $3,000 | $0 | $0 |
Apostille | $1,000 | $3,000 | $0 | $0 |
Courier | $1,000 | $3,000 | $0 | $0 |
Legal Representation to open the entity | $1,000 | $3,000 | $0 | $0 |
Employment agreement | $1,000 | $3,000 | $0 | $0 |
Minimal capital requirements | $1,000 | $3,000 | $0 | $0 |
Accountant fees | $1,000 | $3,000 | $0 | $0 |
Insurance set up (research, selection, contract wet ink signing) | $1,000 | $3,000 | $0 | $0 |
Registration with governmental authorities as an employer | $1,000 | $3,000 | $0 | $0 |
VAT registration | $1,000 | $3,000 | $0 | $0 |
Bank account set up (research, selection, incorporation documents to present and KYC process) | $1,000 | $3,000 | $0 | $0 |
Capital injection of the bank account | $1,000 | $3,000 | $0 | $0 |
Employee benefit setup | $1,000 | $3,000 | $0 | $0 |
Entity structure advice | $1,000 | $3,000 | $0 | $0 |
Entity address set up | $1,000 | $3,000 | $0 | $0 |
Tax structuring advice | $3,000 | $6,000 | $0 | $0 |
Total entity set-up costs (one-off) | $22,000 | $63,000 | $0 | $0 |
Note: These costs are subject to change depending on the employer and employees' needs. For example, legal fees may arise if employees have questions about their employment agreements or employment laws.
Ongoing global payroll administration costs
After your company sets up an entity, you will be responsible for paying additional, ongoing costs as you hire new employees and expand your global workforce. Below is an example of the estimated costs a UK company may encounter.
Cost Category | Min (Entity) | Max (Entity) | Min (EOR) | Max (EOR) |
---|---|---|---|---|
Cooperation tax | 29.05% | 29.05% | $0 | $0 |
Cost to hire a payroll manager in each country to manage benefits | $50,000 | $50,000 | $0 | $0 |
Employment contributions (insurance, pension, social security, etc.) | 13.00% | 13.00% | 13.00% | 13.00% |
Director/Manager representation | $1,000 | $3,000 | $0 | $0 |
Medical exams | $0 | $0 | $0 | $0 |
Mailing address | $1,000 | $3,000 | $0 | $0 |
Employee off-boarding | $3,000 | $6,000 | $0 | $0 |
Training: health and safety | $0 | $0 | $0 | $0 |
Onboarding of employees | $1,000 | $3,000 | $0 | $0 |
Employee salary payments are done on time to comply with the local law | $0 | $0 | $0 | $0 |
EOR annual service fee (for one employee) | $0 | $0 | $7,188 | $7,188 |
Total ongoing payroll administration costs (per year) | $56,000 | $65,000 | $7,188 | $7,188 |
In total, the estimated costs of setting up an entity can range from $78,000 to $128,000, whereas the estimated cost of using an EOR is $7,188.
How EasyBroker saves 52% in fees when hiring with Deel
EasyBroker makes buying or renting a home easy with digital optimizations, customizable designs, advanced searches, and everything you need to find your new home.
Being a US company, EasyBroker used outsourcing services to hire in Mexico, but employment laws passed in 2020 made this process more difficult. After dealing with long, tedious, and bureaucratic processes for hiring, onboarding, offboarding, payroll payments, and more, they decided to look for a global solution.
\"Onboarding a new team member used to take two weeks. Now, with Deel, the process takes less than two hours,” said Rodríguez León, Operations and People Coordinator. “The whole payroll process used to take three to four days. With Deel, it only takes me 10 minutes; plus I can upload bonuses with a click. The platform is easy to use, both for hiring and for payments, and the quality-price ratio was a plus.\"
With Deel’s easy-to-use platform, EasyBroker has simplified its processes, saving them 52% in fees and 50% in onboarding time.
Manage all entities in one place with Deel EOR
As an all-in-one platform, Deel streamlines compliance with local labor laws, tax regulations, and HR requirements in multiple countries, reducing the burden of legal and regulatory complexities for global teams.
Deel’s EOR pricing structure starts at $599/month and 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
We’re not just an EOR. We provide solutions for almost everything... Running payroll alone is not enough. You want to make sure that you offer your employees, wherever they are, the same experience they would have if hired through the company. And that’s what we do at Deel.
—Kamylle Mourão Cavalcante,
Senior Manager, Global Mobility
When clients move from the EOR model to owned entities, Deel can continue supporting them with Entity Setup services and Global Payroll. Clients can use multiple Deel services to fit their needs, using the EOR model for some locations and Global Payroll for others, as well as hiring independent contractors.
To discuss your options with an expert, book a 30-minute demo with our team today.
Additional Resources
About the author
Shannon Ongaro is a content marketing manager and trained journalist with over a decade of experience producing content that supports franchisees, small businesses, and global enterprises. Over the years, she’s covered topics such as payroll, HR tech, workplace culture, and more. At Deel, Shannon specializes in thought leadership and global payroll content.