One of the most common questions we receive from finance teams is:
"At what point should we stop using an EOR and establish our own entity?"
It's a sensible question.
An Employer of Record is often the fastest and lowest-risk way to enter a new market, but it is not always the most economical long-term solution.
The challenge is that many companies make this decision based purely on management fees, while ignoring the hidden costs and risks of operating their own entity.
The reality is more nuanced.
The Mistake Most Companies Make
Many businesses look at an EOR invoice and conclude:
"We're paying $600 per employee per month. We should just open our own company."
On paper, that sounds logical.
However, opening an entity creates an entirely new cost structure.
You don't simply replace the EOR fee.
You inherit every responsibility the EOR was previously handling.
What Does a Local Entity Actually Cost?
The costs vary by country, but most companies underestimate:
Legal Formation
- Incorporation fees
- Legal counsel
- Corporate registrations
- Banking setup
Typical cost: USD $5,000–$25,000+ depending on jurisdiction.
Ongoing Accounting
Even a dormant company often requires:
- Annual filings
- Tax returns
- Financial statements
- Statutory reporting
Typical annual cost: USD $3,000–$15,000+
Payroll Administration
Many countries require:
- Monthly payroll processing
- Tax reporting
- Social security filings
- Pension administration
Often outsourced separately.
Local Directors & Representatives
Some countries require:
- Resident directors
- Local representatives
- Registered offices
Adding further annual cost.
The Hidden Cost Nobody Talks About
The biggest cost is often not financial.
It is management time.
When an issue arises involving:
- Employment law
- Termination
- Tax audits
- Immigration
- Benefits
Your team becomes responsible.
This can consume significant HR, legal and finance resources.
So What Is The Real Break-Even Point?
In our experience, the break-even point usually occurs when a company reaches:
10–20 Employees In One Country
Below this threshold:
An EOR is often cheaper and significantly lower risk.
Above this threshold:
Entity formation begins becoming commercially attractive.
Questions Every Company Should Ask
Before opening an entity, ask:
Is This Market Proven?
Are revenues established?
Or are you still testing demand?
Is Growth Predictable?
Will you have 15 employees next year?
Or 3?
Do You Need A Physical Presence?
Many companies discover they don't.
Our Recommendation
For most clients:
Phase 1:
Use an EOR.
Phase 2:
Validate the market.
Phase 3:
Establish an entity when scale justifies it.
The best expansion strategies are usually phased, not rushed.
Conclusion
The question should not be:
"How quickly can we open an entity?"
The question should be:
"Has the market earned the right for us to open one?"
An EOR is not simply a hiring solution.
It's a risk-management and market-entry strategy.
