Switching From EOR to Entities? Here’s How to Prepare Your Payroll

Transitioning from an employer of record (EOR) model to managing payroll through owned entities is a pivotal milestone for scaling businesses, but it comes with its complexities.

As your company navigates global expansion, you may face challenges in ensuring compliance across diverse jurisdictions, maintaining operational continuity, and preserving a seamless employee experience.

At Deel, we understand the intricacies of this transition—our extensive expertise in global HR, payroll, and compliance is tailored to empower enterprise teams like yours. In this guide, we’ll break down the step-by-step process of switching from EOR to entities, providing actionable strategies to simplify compliance, onboard employees effortlessly, and retain data integrity.

By taking these steps, your company can unlock greater control, scalability, and cost-efficiency, allowing you to focus on strategic growth. Stay tuned as we guide you through how Deel ensures a smooth, compliant transition without adding stress to your team.

First: Confirm you should switch from EOR to owned entities

Expanding globally necessitates careful consideration of crucial questions related to hiring, payroll, and workforce management in a new country.

Two primary options include establishing a legal entity or utilizing employer of record services, with decisions hinging on factors such as scalability, speed, compliance regulations, HR capabilities, and exit strategies.

Here are key questions to find the best solution:

• Can your team navigate diverse employment laws, tax regulations, and HR requirements? Using an EOR shifts compliance responsibilities to experts, ensuring adherence to local laws and minimizing risks.
• Can you afford the upfront costs of opening an entity? Employer of record services offer transparent cost structures, aiding budgeting, and often result in substantial cost savings.
• Does your team possess sufficient local market knowledge? EOR services provide built-in local expertise, crucial for industries where cultural understanding is vital.
• How quickly do you need to set up operations? EOR services enable rapid deployment of resources, facilitating quick market entry compared to establishing your own entity.
• How much control do you want over back-office operations? Establishing an entity provides full control but requires substantial HR investment. EORs offer a hands-off approach to back-office operations.
• How long do you plan on staying in the region? EOR arrangements can be strategically used as a stop-gap, allowing companies to maintain momentum during global expansion.
• How risk-averse is your company? EOR services shift legal and operational risks to the provider, making it a lower-risk option compared to establishing an entity.
• What are your scalability requirements? EOR partners offer maximum hiring flexibility, allowing quick adaptation to market demands.
• What is your ideal exit strategy? EOR services streamline the exit process, handling HR, payroll, and compliance matters, ensuring compliance with local regulations during the exit.

Remember, each choice has its pros and cons. Consider your business goals, budget, and long-term plans before moving from EOR to owned entities.

Keep reading: Choosing Between EOR and Own Entity? Answer These 9 Questions First

What is global payroll?

Global payroll is a managed payroll solution that involves overseeing and distributing employee compensation on a multinational scale. As a global payroll provider, we run your organization’s payroll but we are not your international employees’ legal employer of record.

Our global payroll services are handled by 350+ in-house payroll managers dispersed across the world. They handle:

• Compliantly onboarding and offboarding employees
• Employee benefits and deductions
• Tax filing with local tax authorities and governments
• Time off, expenses, and bonuses
• Localized employment contracts and documents
• Payslip creation and delivery
• Off-cycle payments
• Salary and tax payments (where applicable)
• Generate and analyze global payroll reports

Learn more about Deel Global Payroll.

Setting up a legal entity

To run global payroll, you need to register a legal entity (also known as a foreign subsidiary) in your target country and hire employees directly under that entity. In our Guide to Setting Up a Local Entity, we walk you through the three phases of the process: Research and preparation, registration, and building an international team. Here’s a quick overview of the steps:

Once you’ve registered your entity, it’s easy to onboard it to the Deel Global Payroll platform:

1. Add your entity: Under Organization Settings on the Deel dashboard, click Entities and select Add Entity.

2. Input entity details: Add the required entity details and complete the onboarding tasks. Your entity will then be visible on the Entities page. You can continue by adding your team members, uploading necessary business documents, and submitting your first payroll report.

See also: How To Complete Entity Onboarding And Activate Global Payroll

Transitioning with Deel: The client experience

Transitioning from one HR model to another is simplified with careful planning, expert guidance, and a robust infrastructure. At Deel, we make switching from the EOR model to Global Payroll effortless for our clients by providing end-to-end services, including:

• Creating employment contracts in compliance with local employment laws
• Migrating employees’ information from their EOR accounts to Direct Employee - Payroll accounts
• Transferring all compliance documents that are allowed to be transferred between entities
• Automatically sending employee onboarding emails

Transitioning with Deel: The employee experience

Shifting from an EOR to a legal entity can raise questions among your workforce, including concerns about switching to a new system. With Deel, your workforce stays within a platform they’re already familiar with, making the experience stress-free. 

Deel ensures that historical documents, payslips, and tax records from the EOR era remain accessible to employees. They won’t have to re-upload all of their compliance documents, either, though there could be a few that need to be re-submitted upon change of employer.

Here’s a closer look at the process:

1. Deel sends a welcome email with an activation link

Once your entities are set up on the Deel Global Payroll system, your current EOR employees will automatically receive an email to complete onboarding for their direct employee contracts. We send multiple email reminders to the employees before the onboarding due date to ensure their profiles are completed in time to run payroll.

2. Review account details

We will migrate as much data and onboarding documentation as possible, however, there may be some country-specific documentation that cannot be migrated between accounts. While employees won’t need to re-enter personal details or bank account information, we recommend they check their account details to confirm accuracy.

3. View historical EOR information

To view payslips and tax documents from their time as an EOR employee, users can toggle between their EOR profile and Direct Employee - Payroll profile.

Why make the switch from EOR to owned entities?

Switching from an EOR to establishing legal subsidiaries and running global payroll is a strategic move that enterprise companies might make to gain more control, flexibility, and efficiency in their international operations. Here’s why this transition from EOR to entities could be appealing:

Enhanced control

Creating a legal subsidiary in a new country allows you to have full ownership and control over global entities. This enables greater decision-making authority, autonomy in hiring practices, and the ability to align subsidiary operations with the company’s overall strategy.

Tailored global employment practices

With direct subsidiaries, your company can implement HR policies and practices that are aligned with your corporate culture and values. By taking this step, you can ensure consistency in workforce management across all locations, fostering a cohesive and unified work environment.

Customized payroll management

Running direct global payroll offers the flexibility to tailor compensation and benefits packages to meet local laws, market demands, and employee preferences. This customization can enhance employee satisfaction and retention, as well as attract new employees in each region.

See also: 5 Payroll Optimization Tips for Global Enterprises

Strategic expansion

Having a physical presence in different countries can facilitate stronger relationships with local clients, partners, and local stakeholders. It demonstrates commitment to the new market and can lead to improved business opportunities for growing companies.

Compliance and risk management

By directly managing your legal entities, your team gains a better understanding of local labor laws, tax regulations, and compliance requirements, reducing your risk of non-compliance and legal issues like permanent establishment risk (PE risk).

Free resource: Global Payroll Compliance Checklist

Long-term scalability

Legal subsidiaries offer a scalable foundation for expansion. As your company grows, it can establish new subsidiaries in various locations with relative ease, ensuring a consistent approach to HR and payroll while adapting to local nuances.

Cost efficiency

While EOR services provide convenience, they also come with management fees that increase as your team and business needs grow. Establishing subsidiaries can lead to potential cost savings in the long run, as your team can negotiate contracts and vendor relationships without intermediary fees.

See also: How Much Does an EOR Cost vs. Opening an Entity?

Technology integrations

Running direct global payroll allows for centralized technology solutions and integrations that streamline payroll processing and reporting across subsidiaries. A centralized system like Deel enhances your data protection and accuracy, and provides better insights into workforce analytics, as you get a holistic view of global workforce data.

Establishing subsidiaries involves substantial legal, financial, and administrative tasks. Despite compliance challenges, varying labor regulations, and multiple tax jurisdictions, ensuring a smooth transition can be achieved through deliberate planning, professional guidance, and strong infrastructure.

See how Deel can support your EOR to entity transition

Making the switch from an employer of record (EOR) to entities is often a necessary step in global expansion. With Deel, you get a scalable global HR solution that grows with your business—whether you need an employer of record, international payroll, or to hire independent contractors.

The best part? You won’t need to switch global HR providers. Everything stays in one centralized platform, making the process effortless for your HR team and remote employees. 

It’s a hassle-free experience, and our onboarding team can guide you through the process. Learn more by booking a 30-minute demo with our experts. During the session, you can explore Deel's process and pricing, and have all your questions addressed in a dedicated Q&A session.