Expanding your business into new markets is an exciting opportunity for growth, but it brings challenges—especially when it comes to hiring and managing employees abroad. If you’re looking to employ talent in a new market without setting up a legal entity, you generally have two primary options: an Employer of Record (EOR) or a Foreign Employer Setup. Each has its pros and cons, and the right choice depends on your business strategy and objectives.
In this blog, we will exlore the EOR vs. Foreign Employer setup. We highlight the pros and cons of each option and emphasize why the Foreign Employer Setup can often be a more cost-effective and strategic choice for long-term expansion.
Employer of Record (EOR)
An Employer of Record (EOR) is a third-party organization that takes on the legal responsibility for employing workers on behalf of another company. EOR services are typically used by businesses that want to hire employees in a foreign country without going through the process of setting up a local legal entity.
Pros of Using an EOR:
- Quick Market Entry: EOR services offer a fast and efficient way to start hiring employees in a new country, as you don’t have to establish a legal entity.
- Compliance Assurance: EOR providers are experts in local labor laws and regulations, ensuring that your employment practices are compliant with the host country’s requirements.
- Risk Mitigation: The EOR assumes many legal and financial responsibilities, protecting your company from risks related to employment laws, taxes, and HR administration.
- Flexibility: It’s easier to scale your workforce up or down without managing the complexities of setting up and closing down a foreign entity.
Cons of Using an EOR:
- Higher Long-Term Costs: The cost is a crucial aspect in the EOR vs. Foreign employer debate. While EORs can be a quick and convenient solution, they tend to be expensive, especially in the long run. EORs often charge per employee, and those fees can add up quickly, making the service less cost-effective as your foreign operations grow. For instance, EOR services such as Remote and Deel charge $599 USD per employee per month.
- Limited Control: With an EOR, you maintain control over the day-to-day tasks of your employees, but you relinquish control over certain HR, administrative, and compliance functions, which can limit your flexibility.
Foreign Employer Setup
A Foreign Employer Setup allows your company to hire employees directly in a new market without creating a separate legal entity. Instead, your parent company is registered as a foreign employer, meaning you can employ people directly under your company’s name.
Pros of a Foreign Employer Setup:
- Cost Efficiency: Registering your company as a foreign employer is typically far more cost-effective in the long term compared to using an EOR. In the EOR vs. foreign employer scenario, once the registration is complete, there are no recurring EOR fees per employee, significantly lowering your operational costs as you scale.
- Full Control: You maintain full control over your employees and HR processes, allowing you to handle payroll, taxes, and employment contracts directly, ensuring a smoother operation.
- Enhanced Brand Image: Direct employment under your company’s name can boost your brand reputation in the local market. Employees are likely to feel more connected to your company when they are employed directly by you, rather than by an intermediary EOR. This can lead to better employee engagement and commitment.
- Potential Tax Benefits: In some countries, registering as a foreign employer can open up tax benefits or incentives that are not available through EOR arrangements.
Cons of a Foreign Employer Setup:
- Registration Process: While setting up as a foreign employer doesn’t require creating a legal entity, it does involve a registration process with local tax and social security authorities. This can take a few weeks, but it’s a one-time process that pays off in long-term cost savings.
- Compliance Responsibilities: You will be responsible for understanding and complying with local employment laws, tax regulations, and labor codes. However, this can be managed efficiently with the help of a local payroll provider or legal expert.
Conclusion: The Best Choice for Long-Term Success
When deciding between an EOR and a Foreign Employer Setup, it’s crucial to consider your company’s goals, the size of your foreign workforce, and your long-term strategy. In the EOR vs. Foreign Employer comparison, EOR is a great option if you need a quick and temporary solution for market entry.
However, in the EOR vs. Foreign Employer debate, if you’re planning long-term growth in the new market or expect to hire several employees, the Foreign Employer Setup is typically the most cost-efficient and strategic option. It provides you with full control, lower costs, and the ability to directly engage with employees, all while maintaining your brand’s integrity in the local market.
At Internago, we specialize in helping businesses register as foreign employers, ensuring smooth and compliant market entry without the need to set up a legal entity. Our team of experts is here to guide you every step of the way, from registration to payroll, so you can focus on growing your business. Internago is your dedicated partner when expanding into new markets. Let us help you make the right choice for your international growth.
Be sure to also check out our blogs on setting up as a foreign employer in Spain, France, Italy, the Netherlands, Germany, Finland, the Czech Republic and Sweden.
Need help with these steps? Internago is here to assist. Our payroll solutions make it easy to manage your responsibilities while ensuring compliance with local regulations.
For more information, contact us at info@internago.com or visit our Payroll Portal.