EOR vs. Entity Costs: What’s More Affordable?

Expanding your business globally marks a significant milestone that brings exciting opportunities. However, it also introduces complex decisions, especially regarding hiring and managing teams internationally.

Many leaders grapple with the following dilemma. Should I take on steep upfront and ongoing expenses by establishing your own foreign entity? Or should I leverage the simplicity and financial transparency of an Employer of Record (EOR)?

At Deel, we’ve observed how challenging international expansions can be when companies misjudge the expenses involved in setting up entities. Regulatory compliance, administrative overhead, and costly exit processes can lead to stress, frustration, and regret.

With global HR, payroll, and compliance expertise, Deel confidently guides businesses toward strategic, cost-effective solutions, ensuring smoother market entries and greater scalability.

This article uncovers the financial implications of establishing your own entities or partnering with an EOR like Deel. You’ll make smarter global expansion decisions that reduce your risks, ensure compliance, and unlock remarkable cost savings.

Cost comparison: EOR vs opening an entity

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.

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.

Upfront costs

There are considerable upfront costs required to open a foreign entity. These include setup fees, registrations, hiring legal, accounting, regulatory, and expansion experts, and meeting minimum capital requirements.

Indirect costs can include:

• Closing down a virtual or physical office
• Legislation and translation of documents,
• Notary fees
• Courier fees
• IPR
• Corporate secretarial

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 no entity setup fees are 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.

Discover how Leya hired top talent and broadened its market reach with Deel.

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

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 organization. It requires oversight from in-house experts or outsourced practitioners. This can cost hundreds of dollars per hour or thousands per month on retainer.

An EOR partner provides 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.

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

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

Administrative and operational costs

You’ll need HR, finance, compliance, audit, and legal teams to support your new workforce.

If you decide to set up an entity yourself, you can build an internal team. This involves recruiting and training dedicated personnel who’ll handle payroll, HR, employee benefits, and more. This approach will give you direct control over your HR and payroll processes. However, it also comes with the responsibility of investing time and resources in team development.

Forming and managing this team alone 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. 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 organization without having to manage multiple HR and payroll systems.

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

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

Flexibility and scaling

EOR solutions give businesses great flexibility. They help companies scale operations worldwide, test new markets, and enter new markets without the need to open a new entity.

Opting for an EOR ensures a quick setup process. It allows 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. In contrast, hiring UK employees with Deel’s EOR takes two days.

As an all-in-one platform, Deel can support your organization 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.

See also: How to Maintain Operational Flexibility with Employer of Record Services

Exit costs

Dissolving an entity can involve long legal processes and financial implications. This makes the exit strategy a crucial consideration for long-term planning. For example, in the UK, it takes at least three months to dissolve a company. This doesn’t include any preparatory work.

The exact cost of closing an entity will depend on various factors. Costs typically include 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. Deel streamlines this process further, allowing you to transition from one product to another without switching providers.

Risk management

Establishing an entity requires 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, it becomes the legal employer of your workforce. Your organization retains day-to-day management responsibilities. This shared model helps distribute risk. It also helps you avoid the burden of navigating legal requirements alone.

Ongoing global payroll administration costs

After your organization sets up an entity, you'll 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 organization may face.

In total, the estimated costs of setting up an entity can range from $78,000 to $128,000. On the other hand, the estimated cost of using an EOR is $7,188.

Learn more in our guide: Cost to Set Up an Entity in the United Kingdom.

Entity or EOR: You can do it all with Deel

If your goal is to expand into new markets and reach the best global talent hassle-free, you’re in the right place. Deel is the most complete global hiring and expansion solution in the market today.

Deel lets you 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
• 20+ integrations for HR, Finance, and more

If you want to move from an EOR to owned entities, Deel provides support with Entity Setup services and Global Payroll.

You can customize how you use Deel services. Use the EOR model in some locations. Use Global Payroll in others. You can also hire independent contractors when needed.

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