Time-to-Market Advantage: EOR vs. Entity Establishment

Once your research and pilot testing have shown that a market is a good fit for your business expansion, it’s time to decide on your entry strategy.

An employer of record (EOR) is a company that hires, manages, and pays employees for a client company in foreign markets where the client doesn’t have an owned entity. The EOR acts as the legal employer for these international employees and handles payroll, benefits, compliance, and other administrative tasks.

💡 Read more: 8 Employer of Record Myths & Misconceptions

Establishing your own entity involves the process of legally forming a business entity in a target country. The process typically includes registering the business with relevant government authorities, obtaining necessary permits and licenses, and complying with local tax and regulatory requirements.

Whether you’ll go for an owned entity or use EOR services depends on multiple factors:

• Availability of financial, time, and human resources to cover the needs of operations in the new market
• Complexity of local employment laws and tax regulations and availability of internal resources to navigate through compliance requirements of the new jurisdiction
• Level of flexibility you need to scale up and down in the target country or region without fixed commitments
• Long-term goals for the target country or region, such as establishing a permanent presence vs. just testing the waters
• Future or simultaneous expansion plans, in terms of whether you’re expanding into different countries or regions at the same time or near future

Of course, one of the key factors is precisely time (or speed) to market.

Why should you care about time to market? 

You may be looking to become the first business to offer your kind of product or service and establish brand recognition in a country or region or make sure you’re catching up with your current competitors in their global expansion efforts.

Maybe your goal for the current year is to maximize revenue potential, or you’re chasing the next round of funding and want to meet investor expectations. Or you want to hire from a specific talent pool to close a skill gap in your business or capitalize on emerging market opportunities and shifts in consumer behavior that allow you to address the needs of your new customer base.

Also, changes in regulatory frameworks, trade agreements, or market conditions may create windows of opportunity or necessitate rapid market entry to adapt to new circumstances or mitigate potential risks.

Whichever your reason, if high speed-to-market is your priority when determining the best approach to expanding your business operations, this comparison may help you get an accurate picture of what the expansion process looks like:

Sometimes, registering a business entity abroad takes months, which can cause you to lose great talent.

Say you’re in contract with a great candidate who’s a good fit for your team and has the exact expertise to lead your next big project. That kind of talent is probably in high demand, so it’s unlikely that your candidate would be willing to wait for a few months until you’ve established an entity to hire them.

With an EOR, on the other hand, you can hire an international employee in as little as a couple of days, depending on the complexity of local labor laws and legal regulations.

Here are a few concrete examples of how long it takes to establish an entity in different countries.

Cost implications of using an EOR vs. setting up an entity

Establishing a business entity typically involves different upfront expenses and costs and an investment of time and resources to understand the local tax, payroll, and employment laws.

By using an EOR service, you can avoid the expenses associated with setting up and maintaining your own legal entities, including long-term hidden costs business owners often overlook, such as ongoing payroll and HR costs and sometimes even exit costs.

While establishing an entity may have some financial benefits over the EOR (for example, only locally established businesses may be eligible for certain tax breaks), your EOR provider still saves you significant amounts of money in the following ways: 

• Setup and maintenance costs: An EOR eliminates the need for the initial setup costs associated with establishing a foreign entity, such as legal fees, registration fees, and office space expenses. Ongoing maintenance costs, such as annual renewal fees and administrative expenses, are also avoided.
• Compliance costs: EOR services handle all aspects of compliance, including payroll taxes, benefits administration, and making sure employment contracts are aligned with local labor laws. By outsourcing compliance to the EOR, companies can avoid potential penalties, fines, and legal fees resulting from non-compliance with foreign regulations.
• Time savings: Leveraging an EOR can save businesses valuable time by streamlining the hiring process, navigating complex legal requirements, and managing administrative tasks. This efficiency translates into cost savings by reducing labor hours spent on bureaucratic processes (exceeding the initial time savings of being able to speed up employee onboarding).
• Flexibility: EOR services offer flexibility in scaling your operations and expanding geographically. You can quickly adjust your global workforce size (which means downsizing as well) or expand into new markets without the long-term financial commitments associated with establishing and maintaining a foreign entity.

Below you can see an estimate of the ongoing employer costs (USD) required for a US-based company to maintain its owned entity in the UK.

As you can see, the estimated costs of setting up an entity can range from $78,000 to $128,000. The estimated cost of using an EOR is only $7,188 per year.

See our comprehensive comparison between EOR and owned entity expenses for a more detailed cost breakdown.

Disclaimer: These cost estimations are true at the moment of the publication of this article. They may vary depending on the employer’s and employee’s needs. 

Compliance and legal exposure with EOR vs. owned entities

An EOR streamlines and simplifies complex legal and compliance issues associated with employing staff in different jurisdictions, allowing you to enter multiple markets at once and thus saving your time.

If you wanted to register your own business entity in every country you hire from or expand to, it’s likely that it would last for years. You would need to go through the time-consuming registration process for each entity from scratch, not to mention looking for suitable in-country support in terms of legal counsels and global payroll experts or building in-house teams to handle payroll and HR tasks.

EORs specialize in international employment regulations and stay on top of any changes in labor and tax laws and employment practices across multiple jurisdictions, countries, and regions. Their expertise allows them to navigate legal complexities and ensure compliance with local regulations.

EORs provide comprehensive support throughout the employment lifecycle, from onboarding to termination. They handle payroll processing, tax withholding, benefits administration, and statutory filings, relieving businesses of the burden of understanding and adhering to intricate compliance requirements.

By outsourcing employment functions to an EOR, you can mitigate the risk of non-compliance with foreign regulations. EORs assume legal responsibility as the official employer, reducing the potential for penalties, fines, lawsuits, and reputational damage resulting from compliance violations.

This is a key benefit of EORs, given that noncompliance can significantly hinder your expansion efforts and sometimes even get you banned from operating within a certain country.

Being a global employer of record with entities in over 100 countries, Deel operates with 200+ internal legal experts, covering every single country where you might want to hire from, with extensive experience and knowledge of local legislation. This provides additional peace of mind when you want to hire independent contractors: with products like Deel Shield, you know you’re 100% protected from non-compliance.

💡 See also: 4 Compliance Challenges When Setting up Your Own Entity

How Deel’s clients cut new market launch time with our EOR services

Nium, a big financial services company based in the APAC region, managed to expand to new markets faster than they ever thought would be possible.

“I would say [Deel] saved us at least 12 to 24 months of effort. I’d recommend Deel to anyone who would like to expand globally and has limited time and resources to build the capability internally,” says Nupur Mehta, VP of Human Resources at Nium.

Read Nium’s story

Another leader from the APAC region and a big name in the healthcare tech industry, Eucalyptus, managed to cut their time to market 2x thanks to Deel. Thanks to our services, Eucalyptus was able to launch its operations in its key market, Germany, much faster than initially anticipated.

Read Eucalyptus’s story

Deel is the right employer of record for modern global teams

A startup or an enterprise, if your goal is to expand into new markets and reach the best global talent hassle-free, you’re in the right place.

Deel is the most complete global hiring and people management solution in the market today, with features covering the entire employee lifecycle, from background checks and locally compliant contracts to payroll processing and administering employee benefits packages to more complex HR services like performance management and visa support.

As your chosen global EOR partner, Deel makes sure you’re protected from misclassification risks anywhere you hire, provides the best (and equitable) employee experience for all your team members, and allows easy scaling through automation, top-notch integrations, and dedicated internal expertise available to you through multiple support channels.

Ready to learn more about our platform? Book a demo with our team today.