how much does an EOR cost?

Cost Comparison: EOR vs. Opening an Entity

Can your company save on costs by using an EOR instead of opening an entity? Get an inside look at the estimated fees and requirements here.

Shannon Hodgen
Written by Shannon Hodgen
December 19, 2023
Contents
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Key takeaways

  1. When a company opens a legal entity, they have to invest in set-up costs as well as continuous management costs.
  2. Employer of record services allow client companies to hire international employees more easily and with lower, more predictable costs.
  3. You can manage your entire workforce in one place with Deel, whether you have owned entities, use our EOR, or hire independent contractors.

Of the many strategic decisions you have to make during global expansion, determining how you’ll hire global talent is one of the most important. Do you use an employer of record (EOR), or establish your own legal entity and hire employees directly?

Usually, the decision comes down to cost. 

Creating a legal entity in a foreign country incurs significant expenses due to legal, compliance, governance, and administrative processes, as well as industry-specific requirements. On the other hand, opting for an EOR service provider is often more cost-effective since they already have legal entities established.

Let's take a closer look at the typical costs related to global expansion and how they differ when using an EOR company versus setting up a local 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.

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.

how much does an EOR cost?

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, Deel via The View From the Top

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.

how much does an EOR cost?

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.

Read the full case study.

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. 

 

Estimated cost of hiring an employee with an entity

Estimated cost of hiring an employee with an EOR

 

Min

Max

Min

Max

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.

 

Estimated cost of hiring an employee with an entity

Estimated cost of hiring an employee with an EOR

 

Min

Max

Min

Max

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.

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

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.

Read the full case study.

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, Deel

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.

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

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