EOR vs. Entity Setup: 5 Factors That Impact Total Cost of Ownership

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.

With over 110 established entities worldwide, Deel Hire allows companies to avoid the complexities of legal entity setup and streamline their global operations. By using Deel, businesses like Revolut have created 450+ contracts across 16+ countries compliantly and efficiently.

If you’re looking to scale globally without the financial and operational burdens of traditional methods, explore how Deel Hire can help control total cost of ownership, minimize compliance and legal risks, and enable continuous global expansion.

What is an EOR?

Employer of Record (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. This model allows you to focus more on core operations while mitigating non-compliance risk.

Entering a new market requires balancing speed with risk and capital efficiency. Extended timelines for entity setup can delay revenue generation and limit strategic flexibility. By using an Employer of Record as the legal employer, organizations can initiate global hiring and operations more efficiently while deferring permanent entity investment until the market is validated.

Here’s how you can optimize 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. Reduced regulatory and non-compliance risk

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 Chief of Staff Association expanded into the US and Australia compliantly with Deel.

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

3. Lower administrative overhead

Establishing a legal entity introduces a variety of administrative tasks, each carrying its own price tag. Post-setup, your company takes on the responsibilities of managing the workforce, payroll, and HR functions. This operational burden is not only time-consuming; it also comes with significant 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 organization 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 FEMSA saved $270k+ by using an EOR vs entity setup.

4. Lower tech stack costs

Opening and managing an entity in each country of operation typically requires you to use several fragmented platforms for human resources and payroll, which can often lead to duplicate functions and overspending.

Using enterprise-grade workforce infrastructure like Deel simplifies your processes and helps control total cost of ownership. Here’s how:

Integration and compatibility

Organizations operating across multiple countries often rely on a patchwork of HR, payroll, and finance systems. When these platforms don’t integrate effectively, you’re forced to manage duplicate data entry, manual reconciliations, and inconsistent records—introducing operational risk and limiting visibility across the workforce.

Deel addresses this challenge by acting as a standardized execution layer that integrates into existing HRIS, payroll, and finance environments. With pre-built integrations and a flexible API, Deel supports interoperability across complex system architectures—reducing fragmentation, improving data consistency, and enabling teams to automate workflows without disrupting their core systems.

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 validating information. In fact, poor data costs US companies an average of $12.9 million per year.

Leveraging an Employer of Record allows you to 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 Outreach achieved a 90% workload reduction 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.

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 erode your tech stack budget. When dealing with multiple platforms on a global scale, these expenses can compound 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 obstacles.

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.

Take Revolut, a fintech company with 2,000+ employees, as an example. Achieving global expansion and entering new markets is one of their core business goals. Revolut partnered with Deel to identify and hire global talent, resulting in 450+ contracts for onboarding EOR employees across 16+ countries.

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

Consolidate your costs and processes with Deel

With owned legal entities in 150+ countries, Deel Hire lets you onboard employees efficiently and compliantly while controlling total cost of ownership. We take care of compliance—contracts, minimum wage, terminations, and more—plus payroll essentials like tax deductions, pensions, and benefits, so you can stay focused on growth.

When you’re ready to establish your own entities, Deel’s Entity Setup and Management services—combined with global payroll support—make the process simple and compliant. You can choose from Deel’s solutions based on your unique business goals: EOR in some markets, entity setup with global payroll in others, and independent contractor hiring wherever needed.

Book a 30-minute product demo to learn more.