financial benefits of using an eor

5 Financial Benefits of Using EOR Services Instead of Entities

How do companies hire top talent around the world without breaking their budget? With an EOR. Explore the financial advantages of using EOR services here.

Shannon Hodgen
Written by Shannon Hodgen
December 20, 2023
Contents
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Key takeaways

  1. Employer of record services can significantly reduce upfront and ongoing costs associated with global expansion, offering a more cost-effective alternative to legal entities.
  2. Healthcare tech company Eucalyptus saved between 5 and 10% in global hiring costs by using Deel’s EOR model.
  3. With Deel, you can streamline costs and processes by using a single platform to hire, pay, and manage direct employees, EOR employees, and independent contractors.

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. But with an employer of record (EOR), you can accelerate market entry and cut that time down to just a few days.

EOR services act as a bridge between your business and your global workforce. They hire your employees under their established entities and are responsible for payroll processing, benefits administration, and compliance, allowing you to concentrate on core operations.

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

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.

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, such as:

  • 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)

2. Decreased risk of non-compliance fines and penalties

As the legal employer of your workforce, the EOR ensures adherence to local tax regulations, payroll laws, 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 an EOR's expertise allows companies to expand globally with confidence, eliminating the need to invest in high fees and retainer costs for legal experts. 

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:

 

 

Estimated cost of hiring an employee with an entity

Estimated cost of hiring an employee with an EOR

 

Min

Max

Min

Max

Ongoing payroll administration costs (per year)

$50,230

$61,230

$7,188

$7,188

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.

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 create a drain on 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.

By adopting a global EOR, businesses can harmonize their processes and data on an international scale. This not only cuts down on the intricacies of managing varied systems but also paves the way for more cost-effective and efficient operations.

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

Coming from the HR practitioner standpoint, the requirements that we have looking at our HR tech stack are going to be around cost. As we have more companies who want to see their full workforce analytics, it's become critical to have that global approach.

Casey Bailey, Head of People, Deel via Benefits News

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. 

How SiteMinder saves time and money with Deel’s EOR

SiteMinder is a leading open hotel commerce platform. With employees working around the world and new offices in the works, ensuring compliance with local employment and tax laws was a constant challenge.

The team needed to comply with the employment and tax laws in a number of regional markets where it was expanding, and its previous employer of record (EOR) lacked the streamlined efficiency it needed. Deel currently supports SiteMinder with 51 international employees across 11 countries.

“We used to have multiple people across the globe trying to coordinate and diagnose issues or run manual processes,” said Bec Donnelly, Vice President of People at SiteMinder. “Transitioning to Deel has saved us approximately two to three days per month in administration time and costs. The time saved includes multiple salaries and productivity time.” 

Watch Bec’s interview below or read the full case study to learn more.

 

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.

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

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.

As an example, let’s look at Eucalyptus, a healthcare tech company that provides telehealth consultations, pharmaceutical delivery, and ongoing patient care in multiple countries. 

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.

Consolidate your costs and processes with Deel

With legal entities in 110+ countries, Deel’s global employer of record model 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 growth.

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.

Deel makes growing remote and international teams effortless. Ready to get started?

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