Picture a Scottsdale software company that has just offered a job to a support engineer in Lisbon. The founder has no office in Portugal, no plans for one yet, and a start date four weeks away. The next question is how to employ that person legally.
There are two main routes: hire through an employer of record (EOR), or set up an owned local entity. The right choice depends on the role, how long you expect it to last, and whether you plan a real local operation. This guide compares both on speed, cost, compliance, and employee support.
Key takeaways
- An EOR is usually faster for a first hire. The provider already has the local employer setup, so you can hire before forming your own company.
- Compare total cost, not just fees. Salary, employer taxes, and benefits apply either way; the difference is the EOR fee versus entity setup, filings, and management time.
- Plan your exit early. If a country grows into a real operation, moving from an EOR to your own entity is easier when it’s planned in advance.
The two hiring models at a glance
Employer of record. An EOR becomes the legal employer of your overseas hire, handling the local contract, payroll, tax withholding, and statutory benefits. Your company still directs the work, sets priorities, and manages performance.
Owned local entity. Your company forms a local employing company that signs employment contracts directly. You take on employment administration plus the company’s corporate filings, tax obligations, and director duties.
| Employer of record | Owned local entity | |
| Legal employer | The EOR | Your local company |
| Who directs the work | You | You |
| Administration | Provider runs contracts, payroll, and statutory filings | You run or outsource payroll, accounts, and corporate filings |
| Cost structure | Service fee plus employment costs | Employment costs plus setup, filings, advisers, and management time |
| Commitment | A provider agreement with exit terms | A company to maintain and eventually close |
Hiring speed depends on employment readiness
Registering a company and being ready to employ someone are different milestones. In the UK, for example, GOV.UK says companies using its online service are usually registered within 24 hours. But a new company may still need employer tax registration, banking, pension or social insurance enrollment, and payroll setup before it can pay anyone.
Setup can also involve new prerequisites. Since November 18, 2025, new UK company directors have had to verify their identity before incorporation or appointment. Rules like this vary by country, so check local requirements before you set a start date.
With an EOR, the employer infrastructure already exists. You still need to confirm:
- The work location and the employee’s right to work there
- The role, title, and any local restrictions
- Contract terms, including probation, notice, and working hours
- Payroll funding, including any deposit required up front
- Statutory benefits and any extras you want to offer
For either route, ask for a readiness schedule with named owners and dependencies, and use it to test whether your start date is realistic.
Compare total employment costs
Use the same country, salary, benefits, and planning period for both models. Comparing an EOR fee with an entity’s filing fee leaves out most of the budget.
Shared costs. Both models include gross salary, employer taxes, statutory contributions, and benefits. Keep these assumptions identical so you’re comparing like with like.
EOR-specific costs. Record the service fee, any onboarding or offboarding charges, deposits, and how currency conversion is priced. Ask whether a foreign exchange markup is built into the rate.
Entity-specific costs. Add formation, local registrations, accounting, corporate filings, payroll administration, HR and legal support, internal management time, and eventual closure.
Cash flow. Track deposits, prefunding, and any paid-in capital separately from recurring costs, and note which amounts are refundable.
There’s no universal headcount at which an entity becomes cheaper. Run the break-even with country-specific quotes for both routes over the same period, including setup and closure.
Control and compliance are separate responsibilities
Who directs the work. Under both models, your company sets priorities and manages performance. Being the legal employer doesn’t mean an EOR takes over task assignment.
Who employs the person. With an EOR, the provider signs the local contract and runs payroll and statutory filings. With an owned entity, your local company is the employer and its directors carry the company’s accounts and filing obligations, even when they delegate the work.
What needs tax review. Permanent establishment is a taxable business presence that can let a country tax part of your profits. It depends mainly on what the employee does, such as regularly negotiating or signing contracts for your company, rather than on who employs them. An EOR doesn’t remove that risk on its own, so get local advice for customer-facing or senior roles.
Also review licensing, who can sign local contracts, how intellectual property is assigned, and any immigration requirements before committing to employment terms.
What to look for in an EOR provider
If an EOR is the right fit, compare providers on transparency, expertise, and how they handle growth. Look for a flat fee with itemized invoices, no hidden currency markup, real employment-law specialists rather than a ticket queue, and a clear path to your own entity later.
Teamed’s employer of record is one example built for scaling and mid-market companies. Its fee starts at $599 per employee per month with zero FX markup, while salaries, employer taxes, and statutory benefits pass through at cost on a line-by-line invoice. Teamed hires across 187+ countries, can onboard from 24 hours after a signed offer, assigns a country specialist to every account, and is rated 4.8 out of 5 on G2. It also supports moving from EOR to your own entity on the same platform, without re-onboarding employees.
Ask every provider what must be funded before the first payroll. Some, including this one, require a refundable deposit equal to one month of salary plus the first month’s employment cost, so build both into your cash-flow plan.
Employee experience depends on clear ownership
Employees need to know who signs their contract, explains their payslip, approves leave, answers benefits questions, and handles sensitive concerns.
Contract and payroll support. With an EOR, the provider issues the local contract and runs payroll. With an owned entity, your company must arrange those contacts directly or through advisers, and a payroll service alone may not cover every HR or legal question.
Statutory and supplementary benefits. Statutory benefits are required by local law. Extras such as private health or dental cover are your choice, so confirm what’s administered and what’s charged separately.
A responsibility map. Before the start date, assign contract changes, leave, payroll questions, grievances, and terminations to the manager, your HR team, the provider, or the entity’s adviser. Turn it into a simple contact list for the employee.
Choose the model that fits the actual hiring plan
The same comparison can lead to different answers depending on the business plan. These hypothetical Arizona examples show how.
First hire or market test. A Tucson e-commerce company wants a customer-success lead in Mexico City but isn’t sure the role will be permanent. An EOR lets it hire quickly while it tests demand, as long as it checks notice and exit terms.
Established local operation. A Mesa manufacturer plans a service center in Germany with a site manager, local suppliers, and contracts signed locally. An owned entity may fit better because the business needs a corporate presence for years.
Different countries, different choices. A Phoenix professional-services firm with staff in Poland, Brazil, and Canada can choose country by country, using an EOR where hiring is limited and an entity where it has committed to a long-term operation.
Headcount alone doesn’t decide the model. With the rules of hiring shifting toward remote and hybrid work, revisit the decision as roles, duration, and local activity change.
Plan an EOR-to-entity transition before it becomes urgent
Moving from an EOR to your own entity changes the employee’s legal employer. It involves new contracts, accrued entitlements, benefits, and payroll, so leave time for local review before a lease or contract deadline forces the change.
Set the review trigger. Decide what will prompt a reassessment: planned hiring in a country, a contract that needs a local corporate signature, a change in what employees do, or a cost comparison that favors an entity.
Confirm the transfer terms. Have local advisers review entity readiness, new contracts, accrued entitlements, continuity of benefits, records handover, and any exit costs. Give each step an owner and a deadline.
Keep the employee informed. Explain what will change, what stays the same, and who will answer questions about the new contract and benefits.
Coordinate the first direct payroll. Choose a transfer date that leaves time to fund and test the new payroll, and tell the employee when to expect their first payslip from the new employer.
The bottom line
An employer of record is often the fastest, lowest-commitment way to make a first hire abroad, while an owned entity suits a long-term operation that needs a local corporate presence. Many growing companies use both, choosing country by country.
Whichever route you take, compare total costs over the same period, separate employment from tax questions, and plan the move to your own entity before it becomes urgent.
FAQ
What is the difference between an employer of record and a local entity? An employer of record is a third party that legally employs your overseas hire and runs payroll and compliance, while you direct the work. A local entity is your own company in that country, which employs people directly and carries its own corporate obligations.
How fast can you hire through an employer of record? It depends on the country and role, but because the provider already has a local employer in place, hiring is often much faster than forming your own entity.
Does an EOR protect my company from permanent establishment risk? Not on its own. Permanent establishment depends mainly on what the employee does, such as negotiating or signing contracts for your business, so get local tax advice for those roles.
When should a company switch from an EOR to its own entity? Common triggers include steady hiring in one country, contracts that need a local corporate signature, physical operations, or a cost comparison that favors an entity.
Do EOR employees get benefits? Yes. They receive the statutory benefits required by local law, and employers can choose to add supplementary benefits such as private health cover.
