Expanding your business into a new country is both exciting and, well, a little bit terrifying. There’s the thrill of new opportunities, sure, but also a maze of decisions that can keep you up at night. One of the first big questions companies face is whether to set up a legal entity in the new market or to partner with a global employer of record service. It’s not just a matter of paperwork as these choices ripple out into costs, control, and the ever-present spectre of compliance headaches.
Maybe you’ve heard stories from other founders, some who dove headfirst into entity formation and found themselves tangled in red tape, others who went the EOR route and felt a bit like they were renting a house instead of owning it. There’s no one-size-fits-all answer, and honestly, sometimes the “right” choice depends on factors you didn’t even know mattered until you were knee-deep in the process.
This article isn’t here to give you a perfect, one-size-fits-all solution (because, let’s face it, those rarely exist in real life). Instead, we’ll walk through how global employer of record services actually work, when they can be a lifesaver, and when rolling up your sleeves to form a local entity might make more sense.
If you’ve ever wondered which path is right for your company, or just want to avoid the mistakes others have made, read on. We’ve been there, and we get it.
What Is a Global Employer of Record
A global employer of record (EOR) is a service that legally employs workers on behalf of another company in foreign countries. The EOR becomes the official employer on paper, while the client company directs the employee's daily work.
This arrangement allows companies to hire internationally without setting up their own legal entity in each country. The EOR handles all the legal paperwork, tax filings, and compliance requirements in the employee's location.
The client company still manages what the employee does, their performance, and their work schedule. The EOR takes care of contracts, payroll processing, and making sure everything follows local employment laws.
Key responsibilities of a global employer of record include:
Payroll processing: Handles salary calculations and payments in local currency
Tax compliance: Manages income tax withholding and reporting to local authorities
Benefits administration: Provides mandatory and supplementary benefits according to local laws
Employment contracts: Creates legally compliant agreements that protect both parties
Legal compliance: Ensures all employment practices follow local regulations
Why Companies Use Global EOR Services
Companies typically consider using a global employer of record service when they want to hire employees in countries where they don't have a legal business entity.
Setting up a legal entity in a new country can take months and requires significant upfront investment. It involves registering with government agencies, opening local bank accounts, establishing accounting systems, and hiring legal experts familiar with local laws.
In contrast, a global EOR service can help a company hire employees in a new country within days or weeks. The EOR already has the legal structure in place to employ people in that location.
This approach allows companies to:
Test new markets without committing to permanent infrastructure
Hire remote employees in multiple countries simultaneously
Avoid the administrative burden of managing international payroll and compliance
Focus on business operations instead of legal and HR administration
When to Use Global Employer of Record Services
Global EOR services work best in specific situations where speed, flexibility, or temporary arrangements are priorities.
Testing New Markets
Companies often use EORs when they want to explore opportunities in a new country before making a larger investment. An EOR allows them to hire local talent quickly and start operations without waiting for entity setup.
For example, a software company might hire a sales representative in Germany through an EOR to test market demand before opening a full office there. If the market proves promising, the company might later establish its own entity.
The typical timeline for hiring through an EOR is 1-2 weeks, compared to 3-6 months for setting up a legal entity.
Building Remote Teams
EORs are valuable for companies building distributed teams across multiple countries. Rather than creating legal entities in each location, a company can use an EOR to employ team members wherever they live.
This supports remote-first companies that hire based on talent rather than location. The EOR handles the varying employment laws in each country, while the company manages the team's work.
Remote teams hired through EORs can include:
Technical staff: Software developers, engineers, data scientists
Creative roles: Designers, content creators, marketing specialists
Business functions: Sales representatives, customer support, finance professionals
Managing Costs During Early Expansion
Using an EOR service can reduce initial costs when entering a new market. Setting up a legal entity typically requires:
Legal fees for registration and documentation
Accounting setup and ongoing bookkeeping
Bank account establishment fees
Office space or registered address
Local legal and HR expertise
An EOR charges a monthly fee per employee, which is often lower than the combined costs of entity maintenance for small teams. This makes EORs particularly attractive for companies with uncertain headcount plans or limited budgets.
When a Legal Entity Makes More Sense
While EORs offer many advantages, there are situations where establishing a local legal entity is the better choice.
Long-Term Operations
For companies planning to operate in a country for several years with a stable team, creating a legal entity often becomes more cost-effective over time.
EOR services typically charge ongoing fees based on the number of employees. These fees can add up and eventually exceed the cost of maintaining an entity. The break-even point varies by country but often occurs when a company employs 10-15 people in one location for more than two years.
A local entity also provides more control over company policies, employment terms, and business operations. It establishes a more permanent presence in the market and can strengthen relationships with local customers, partners, and authorities.
Large Local Workforce
Companies hiring a significant number of employees in one country often find that creating a legal entity is more economical and practical.
EOR pricing models typically charge per employee, which becomes expensive at scale. In contrast, the cost of maintaining an entity doesn't increase proportionally with headcount.
A local entity also allows for more unified team management, consistent internal policies, and stronger company culture. This becomes increasingly important as local teams grow larger.
Operational Requirements
Some business activities require a direct legal presence that an EOR cannot provide. These include:
Holding inventory or physical assets
Signing large contracts with local customers
Operating in regulated industries with specific licensing requirements
Managing intellectual property rights
Receiving local government incentives or subsidies
In these cases, companies need their own legal entity to fully conduct business operations and meet regulatory requirements.
Cost Comparison: EOR vs. Entity
The financial aspects of global employment vary significantly between using an EOR service and establishing a legal entity.
EOR Fee Structures
Most global employer of record services use one of two pricing models:
Percentage-based: Charging 5-15% of the employee's gross salary
Flat fee: Charging a set monthly amount per employee (typically $500-1,500 CAD)
These fees generally cover all employment-related services, including:
Employment contract creation
Payroll processing
Tax calculations and filings
Benefits administration
Compliance management
HR support
Some EORs require pre-funding of payroll accounts or charge additional fees for services like benefits enrollment or termination processing.
Entity Establishment Costs
Setting up a legal entity involves both one-time setup costs and ongoing maintenance expenses.
Initial costs typically include:
Legal registration fees
Professional service fees (lawyers, accountants)
Bank account setup
Office space or registered address
Ongoing costs include:
Annual filing fees
Accounting and tax preparation
Payroll system subscription
Local HR and legal support
Director fees or local representation
These costs vary widely by country but can range from $20,000 to $100,000 CAD for setup and $5,000 to $25,000 CAD annually for maintenance.
Compliance Considerations
Employment laws differ significantly around the world. Both EORs and legal entities must navigate these regulations, but they do so in different ways.
How EORs Handle Compliance
Global employer of record services specialize in managing local employment compliance. They maintain expertise in:
Labour law requirements
Mandatory benefits
Tax regulations
Termination procedures
Work permit requirements
The EOR takes legal responsibility for compliance with these regulations. If issues arise, the EOR typically handles government inquiries, audits, or disputes.
This arrangement reduces compliance risk for the client company, especially in countries with complex or frequently changing employment laws.
Entity Compliance Responsibilities
Companies with their own legal entities bear full responsibility for employment compliance. This requires:
Staying updated on changing regulations
Implementing compliant HR policies
Managing tax filings and payments
Providing mandatory benefits
Handling employee disputes
While this gives companies more control, it also creates greater risk of non-compliance, especially in unfamiliar markets. Companies often need local legal expertise to navigate these requirements effectively.
Limitations of Global EOR Services
Despite their benefits, global employer of record services have several limitations that companies should consider.
Time Restrictions
Some countries limit how long an employee can work through an EOR arrangement. After a certain period (often 1-3 years), companies may be required to establish a local entity or end the employment relationship.
These restrictions exist because local authorities may view long-term EOR arrangements as attempts to avoid establishing a permanent presence for tax purposes.
Role and Activity Restrictions
EORs cannot support all types of employment arrangements. Limitations often include:
Regulated professions requiring specific licenses
Roles involving signing authority on behalf of the company
Positions handling large amounts of cash or valuable inventory
Jobs requiring specialized work permits
Companies should verify that their intended roles can legally be filled through an EOR before proceeding.
Employee Experience Considerations
Employees hired through an EOR technically work for the EOR, not the company directing their work. This can create challenges for:
Company culture and identity
Career development and internal mobility
Equity compensation and profit sharing
Long-term retention and loyalty
Companies using EORs should develop strategies to integrate these employees into their culture and provide clear communication about the employment arrangement.
Making the Right Choice for Global Hiring
Deciding between a global employer of record service and establishing a legal entity depends on several factors specific to each company's situation.
EOR services work best for:
Quick market entry
Small teams in multiple countries
Uncertain or changing headcount needs
Testing new markets before larger investment
Hiring remote employees regardless of location
Legal entities are typically better for:
Long-term operations in a single country
Large teams in one location
Regulated industries or specialized roles
Activities requiring direct legal presence
Building strong local brand presence
Many companies use a hybrid approach, starting with an EOR for initial hiring and transitioning to their own entity once they reach a certain scale or commitment level in a particular market.
The right choice balances speed, cost, compliance risk, and operational needs based on the company's global strategy and resources.
Borderless AI: Simplifying Global Employment
Borderless AI offers a modern approach to global employer of record services. Its platform combines AI automation with compliance expertise to simplify international hiring.
The service handles employment contracts, payroll processing, and compliance management across 170+ countries. Its AI-powered systems reduce manual work and provide real-time insights into global employment costs and requirements.
Companies using Borderless AI can hire international employees without establishing legal entities, manage payroll across multiple countries from a single platform, and ensure compliance with local employment laws.
Book a demo with Borderless AI to learn more about simplified global hiring.
FAQs About Global Employer of Record Services
What is the difference between a global EOR and a PEO?
A global employer of record (EOR) becomes the legal employer of record for workers in countries where a company doesn't have an entity, while a Professional Employer Organization (PEO) co-employs workers and requires the client company to have its own legal entity in the country of operation.
How quickly can a global EOR service hire employees?
Most global employer of record services can complete the hiring process within 1-2 weeks, including employment contract creation, tax registration, and payroll setup, which is significantly faster than the 3-6 months typically required to establish a legal entity.
Can employees hired through an EOR transition to direct employment later?
Yes, employees hired through a global employer of record can typically transfer to direct employment if the company later establishes its own legal entity, though the process varies by country and may require new employment contracts and benefits adjustments.
Are there countries where global EOR services cannot operate?
Some countries have restrictions that limit or prevent EOR operations due to local labour laws or regulatory requirements, including certain Middle Eastern countries, some parts of Southeast Asia, and specific regulated industries in otherwise EOR-friendly countries.