Employer of Record vs. Owning an Entity: Strategic Signals to Switch

Expanding your business into new markets can be exciting, but it comes with critical decisions. One of the most significant being whether to rely on an employer of record (EOR) or establish your own local entity.

Both options have unique benefits and challenges, and knowing when to transition is vital for your growth strategy. Many companies struggle with factors such as navigating compliance, assessing financial risk, and managing operational complexity.

At Deel, we’ve empowered thousands of businesses to seamlessly scale across 150+ countries by leveraging our global EOR, payroll, and entity setup services.

This article outlines seven key signs that it might be time to switch from an EOR to owning your own entity (or vice versa) based on risk level, global scale, and financial efficiency.

By understanding these indicators, you’ll be equipped to make informed decisions that maximize efficiency and minimize risk as you expand globally. Let’s explore how you can achieve long-term success with the right approach.

1. You’re ready to shift from market evaluation to establishing long-term presence

Establishing your own entity could be an ideal next step if you are confident in your long-term success within a particular market and intend to expand your business by opening foreign offices or facilities.

There are certain factors that can help you anticipate your chances of success, including:

• The availability of local talent
• Long-term revenue potential
• Regulatory and economic stability
• Sustained customer or product demand
• Competitive landscape

You can never guarantee your success in a particular market due to the constant evolution of global markets and economies, competitors, and business objectives. However, companies that are agile and adapt to change are more likely to succeed long term.

Comprehensive EOR services like Deel allow you to quickly enter new global markets where you identify opportunities, with the adaptability to withdraw quickly and easily if necessary. This is particularly beneficial for companies that want to test new markets or engage in short-term projects without committing to long-term establishment. If things work out, you can choose to set up your own foreign entity with the support of our in-house experts or continue with our comprehensive EOR model.

Deel has supported Telin's global expansion, significantly reducing its costs and time to hire and onboard.

2. You’ve got the capital and strategic justification to invest in entity setup

Establishing a foreign entity requires meaningful upfront investment, ongoing maintenance, and compliance ownership. Depending on the country and complexity, setup costs can range widely. For example, Deel estimates that a US business establishing a new UK entity can generally expect to pay $78,000 to $128,000 USD in total setup costs.

Entity cost breakdown

When forming a new entity, organizations should anticipate expenses across these major categories:

• Expansion and legal expertise: Local legal, accounting, and compliance specialists to manage incorporation and governance

• Minimum capital requirements: Mandatory capital depending on jurisdiction and business type

• Registration and employer fees: Filing, name reservation, and employer registration with local authorities

• Corporate governance: Ongoing legal, accounting, and secretarial services to maintain compliance

• Formation documents: Articles of incorporation, bylaws, operating agreements, tax IDs, licenses, and permits

• IP protection and documentation: Trademarks, translations, notarizations, and apostille/legalization requirements

• Accounting and tax support: Financial forecasting, reporting, tax structuring, and audits

• Insurance setup: Local liability, workers’ compensation, cyber, and other statutory coverages

• VAT and tax registrations: Jurisdiction-specific requirements such as local tax IDs, indirect tax filings, digital services tax rules, and monthly or quarterly reporting obligations

• Banking and capital injection: Business account setup and any required capital deposits

• Employment infrastructure: Localized employment agreements and benefits plan setup

• Registered address: Physical or service address requirements, depending on the jurisdiction

For many organizations, these costs and permanent ownership responsibilities limit speed and agility. Hiring through an EOR like Deel eliminates setup fees, reduces financial exposure, and allows businesses to scale up or exit markets without teardown costs or long-term commitments.

Discover how Deel helped Clara expand its business without increasing expenses.

3. You have the funds and operational capacity to manage HR, payroll, and compliance

Besides the initial costs of setting up a foreign entity, businesses also need to budget for ongoing expenses. These include accounting, tax, payroll processing, and benefits administration, together with governance and compliance with local labor laws.

An EOR takes care of these responsibilities on your company’s behalf, allowing you to focus on your core business activities. But, when you transition to your own entity, your organization assumes these costs. You’re also unlikely to benefit from any discounts or deals the EOR receives through its partnerships with insurance providers and integration partners.

Here’s a breakdown of the average ongoing costs of running a foreign entity. Costs can vary significantly depending on the size and complexity of the organization, the industry in which it operates, and the location of its employees and place of incorporation. You can use Deel’s Entity Setup calculator to estimate the ongoing costs your organization will incur.

HR costs

On average, HR accounts for 1.47% of organizational operating expenses, including (but not limited to) costs associated with:

• Training and development
• HR technology
• Your HR team’s compensation package, and
• Talent acquisition and onboarding, including drafting employment agreements, revising compliance documents, registering employees, and more

Payroll management costs

Payroll management costs most businesses between 15% and 30% of their total revenue. This includes:

• Salaries and benefits for payroll staff
• Payroll software
• Tax filing
• Employment contributions

If you run payroll across numerous countries, you'll need to factor in the cost of hiring a payroll manager in each country to ensure compliance with local payroll and employment laws.

The estimated total ongoing payroll administration costs for a business in the UK are:

• $56,000 to $65,000 USD per year with an entity
• $7,188 per year with an EOR like Deel

Compliance monitoring costs

The average yearly cost to maintain compliance can be upwards of $10,000 per employee within highly regulated industries such as healthcare and finance. Companies in less regulated industries tend to spend less. In addition to the internal compliance team's salary packages, the budget is assigned to software and services, such as:

• Regulatory research
• Risk assessment tools and training programs
• Legal fees for external counsel and consulting services

Corporation taxes

When you form a foreign entity, you establish a taxable presence in that country. As a result, most local governments will levy a direct tax on your organization’s income or profits to fund local infrastructure and public services like education and healthcare. Corporate tax rates vary significantly based on factors such as the entity’s location, profitability, revenue, and sector. For example, the main rate of UK corporation tax is 25%, which is levied on a company’s profits.

Local representatives

Some countries require entities to appoint a local representative, resident director, officer, or agent. This aims to ensure that businesses follow local laws and regulations and provides a point of contact for the government. The cost of appointing a local representative for your foreign entity can vary significantly based on location, the complexity of the business, and the scope of services required.

Physical address establishment

In some countries and jurisdictions, establishing an entity requires a local physical address, which requires significant real estate investment. In addition to rental fees, organizations need to anticipate the cost of security deposits, insurance, broker fees, utilities, internet and phone contracts, furniture, and equipment.

By using an EOR service such as Deel’s integrated global payroll, HR, and compliance solution, companies can avoid the compliance risk and expenses associated with maintaining their own overseas local legal entity.

If you already own foreign entities, Deel can support your consolidated entity management. Add your entities into Deel and standardize your global payroll reporting, HR, and workforce compliance with our single, centralized platform.

Strada unified its US payroll and global hiring and saved over $10,000 USD with Deel.

4. You’re prepared for the operational lift and timeline required for entity

Organizations setting up a new foreign entity need to follow multiple time-consuming steps before making their first local hire. By contrast, when you partner with an EOR provider, you eliminate all the bureaucracy and can start hiring global employees immediately.

The entity set up and incorporation process, including license procurement, can take anywhere from two weeks to two years and involves the following steps:

• Choosing a location
• Selecting a business structure
• Obtaining a business name
• Collecting and preparing legal documents
• Obtaining necessary licenses and permits
• Registering the entity with the government
• Opening a business bank account
• Obtaining tax identification numbers
• Setting up payroll and accounting systems
• Hiring employees

The steps outlined may vary between countries and entity types, but obtaining the necessary government filings and approvals is often a lengthy and inefficient process. Unexpected issues with applications, such as missing documents or incomplete information, can further slow down the approval process.

If you want to own your entity without taking on all the complexity, Deel’s Entity Setup services handle the paperwork, filings, compliance, and ongoing administration—so you can expand faster and with full confidence.

Nium saved 12+ months when expanding into a dozen new geographies with Deel.

5. Your HR team can manage complex, country-specific labor requirements

When operating through an EOR, local in-house HR professionals take care of the legal and compliance considerations concerning your global workforce. However, when you form a local entity, you assume all administrative responsibilities.

Unless you’re planning to hire a team of local HR professionals to manage your new HR function in your new entity location, you’ll need to train your existing HR team on local labor laws and regulations concerning the following:

• Minimum wages
• Overtime pay
• Worker classification
• Work hours
• Rest breaks
• Onboarding and offboarding
• Employment agreements
• Union and applicable collective bargaining agreements
• Employee benefit entitlements such as PTO, parental leave, and pensions
• Probationary periods
• Background checks
• Payment methods
• Payment periods
• Payment schedules
• Payroll tax and compliance
• Payroll records
• Termination

It can take many months for a company to build an HR team locally or train its existing HR personnel to handle these highly localized functions. Failure to operate effectively can cause financial penalties, legal exposure, and reputational risk.

EORs like Deel have local HR professionals in countries worldwide who are equipped to handle local employment contracts, minimum wages, and mandatory benefits in every new country you decide to hire. They can streamline employee onboarding and offboarding processes, ensuring workers are up and running quickly and compliantly.

With Deel, Finder reduced HR admin by 20% and cut onboarding times in half.

6. You’re prepared to manage or outsource global payroll operations

When using an EOR, in-house experts navigate complex local regulations to manage payroll on your behalf in every country you operate in. However, you assume responsibility for this weekly, bi-weekly, or monthly task if you form a local entity.

Instead of hiring or training an internal team on local payroll and tax regulations and rates, available payment methods, currency exchange rates, and filing and payment deadlines, most businesses opt to outsource their payroll function to a local provider.

However, using multiple, fragmented local payroll providers can complicate global payroll for businesses that operate across multiple countries. This incentivizes some companies to hire a payroll aggregator that uses external third-party partners to process payroll locally. However, the quality and accessibility of the support is inconsistent.

7. You’re equipped to assume full compliance liability

As the legal employer of your international hires, EORs often assume full liability should a workforce compliance risk or violation occur. However, when you establish your own entity, you become fully responsible for meeting labor, tax, data, and employment regulations across every country where you operate.

Unless you’re planning to hire a team of local compliance professionals to keep you on track, you’ll need to get your existing compliance department familiar with the following:

• Data collection regulations
• Data privacy and protection laws
• Intellectual property regulations
• Payroll and tax reporting regulations
• Labor laws and regulations

It can take many months for a company to build a compliance department locally or train its existing compliance officers to handle highly nuanced laws and regulations. Failure to operate compliantly can cause significant fines, penalties, reputational damage, and even criminal prosecution.

With Deel, you can automatically sync employee details from your HR platform and onboard your international team members seamlessly. Once they’re onboarded, we’ll handle all the payroll calculations for them.

Instead of using multiple payroll platforms, review your team’s salaries and taxes in one, standardized system. Our payroll managers ensure that all your payments follow local regulations. They handle everything from taxes and government declarations to processing payments on your behalf in eligible countries.

EORs like Deel take full responsibility for your compliance with local and global laws and regulations. They ensure that:

• Employment contracts are vetted by legal experts and updated quarterly since labor laws are constantly changing
• All mandatory local benefits packages, like health insurance and pensions, are handled for you
• Your workers are correctly classified to avoid misclassification risks
• You have access to vetted data protection and confidentiality agreements
• All data is processed in alignment with globally recognized data security programs and frameworks such as GDPR
• All the proper payroll taxes, social contributions, and other government fees are paid accurately and on time
• Payroll, payslips, and all things HR admin are taken care of

Deel supports your global strategy at enterprise scale

Choosing between an Employer of Record (EOR) and establishing your own legal entity is a high-impact decision for any enterprise. With Deel, you don’t have to navigate that choice alone. 

Deel supports both pathways. With 150+ owned entities and comprehensive entity setup and management services, we give enterprises the flexibility to hire, pay, and manage talent wherever they operate—while standardizing compliance, HR, and payroll through one integrated platform.

Whether you need the speed and risk mitigation of an EOR or the control of your own entity, Deel provides a centralized system to scale globally with confidence.

Ready to assess the right model for your enterprise? Book a demo with our expert team and explore how Deel can streamline and unify your global operations.