EOR Services vs. Legal Entity: What’s Best?

The global EOR market is estimated to grow to $6604.4 million by 2029, spotlighting the key business choice: EORs or legal entities for international ventures?

Employer of Record

Julienne Raboca

May 16, 2024

Copied to Clipboard

Table of Contents

Example H2

Ready to get Started?

Let's Chat

Key Takeaways

With the Employer of Record market growing at a 6.8% CAGR, reaching USD 6604.4 million by 2029, the trend leans towards EOR companies for quicker, compliant market entry. Firms continue to evaluate EORs' speed against the solid ground of legal entities.

The dilemma is clear: Should you get EOR services or establish your own entity abroad?

Defining EOR Services and Legal Entity Creation

Let's dive into what EOR services and legal entities entail, and how they each play a role in supporting companies' global ambitions.

Employer of Record Services

An Employer of Record (EOR) simplifies the process of hiring overseas by acting as the legal employer for your staff abroad. This arrangement covers all compliance, payroll, and HR tasks in line with local laws. It's an ideal solution for businesses looking to expand internationally without the hassle of creating their own legal entity in each country of operation.

Essentially, EORs offer a direct route to global talent, legally employ workers on behalf of companies, and meet local employment standards.

Legal Entity Route

On the other hand, forming a legal entity such as a limited liability company (LLC), general partnerships, or limited liability partnerships represents a different strategy. This is the option for establishing a more permanent foothold in a new market.

The own entity route allows businesses control over their foreign operations and workforce, but requires navigating the complexities of local legal, tax, and employment landscapes.

Setting up an LLC or PEO (Professional Employer Organization) provides substantial long-term advantages and demonstrates a solid commitment to the local market. However, it demands considerable resources, time, and legal expertise to implement and sustain.

Each pathway offers distinct benefits and challenges – let’s unpack them together.

EOR vs. Legal Entity - A Comparative Analysis

Choosing between leveraging an EOR for expedient market access and establishing a company for deeper market integration depends on a company's objectives, resource availability, and risk tolerance.

Here's a straightforward comparison between EOR services and creating a legal entity for global business expansion.

‍

Aspect	Employer of Record (EOR)	Legal Entity Creation
Compliance and Risk	Manages compliance with local employment laws, reducing legal risks.	Company must ensure compliance with local employment laws, increasing risk of non-compliance.
Operational Flexibility	High flexibility, enabling companies to hire employees globally without a local entity.	Requires establishing a local entity, which may limit operational flexibility.
Speed to Market	Quick market entry by enabling global employment without local entity setup.	Slower entry due to time needed for legal entity setup and compliance with local laws.
Employee Experience	Managed by EOR, ensuring benefits and integration in line with global employment standards.	Managed directly, offering more control but requiring deep knowledge of local employment practices.
Global Employment Support	Enables hiring employees anywhere in the world efficiently without creating a legal entity.	Possible only after establishing a local entity in each country, complicating global employment efforts.

‍

EOR vs. PEO vs. Own Entity

Navigating global HR solutions means choosing between Employer of Record (EOR) services, a Professional Employer Organization (PEO), or setting up your own legal entity. The differences may seem subtle but are critical.

An EOR handles the legal and administrative duties of employing staff abroad, making it a cost-effective solution for companies that want to hire internationally without setting up local entities. The EOR becomes the local employer, taking on responsibilities such as payroll, taxes, and compliance.

A PEO, on the other hand, offers a broader suite of HR services, including recruitment, training, and employee benefits administration, through a co-employment model. This means your company shares employer responsibilities with the PEO, retaining some legal and compliance obligations. PEOs are ideal for domestic market-focused businesses looking to streamline HR functions and enhance support without relinquishing complete control.

Setting up your own legal entity involves establishing a local company in each country where you hire employees without involving an EOR or PEO. This route gives you full control over HR processes and compliance, but comes with significant costs and administrative burdens. Unlike EOR services, which handle local employment laws for you, or PEOs that share responsibilities, having your own entity means shouldering all legal, tax, and operational requirements independently.

‍

Aspect	Employer of Record (EOR)	Professional Employer Organization (PEO)	Own Legal Entity
Scope of Services	Handles legal and administrative duties of employing staff abroad, such as payroll, taxes, and compliance.	Provides a broader suite of HR services including recruitment, training, and benefits administration through a co-employment model.	Full control over HR processes and compliance, but with significant costs and administrative burdens.
Operational Control	EOR acts as the local employer, reducing company’s direct legal responsibilities.	Shares employer responsibilities with the client company.	Complete control over operations but all responsibilities fall on the company.
Cost Considerations	More cost-effective for international hiring without setting up local entities.	May be cost-effective domestically but involves shared costs of HR services.	High initial and ongoing costs for establishing and maintaining local entities.
Compliance and Risk	Manages compliance with local employment laws, reducing legal risks for the company.	Shares compliance responsibilities with the client company, retaining some risk.	Company must manage all compliance and legal risks independently.
Best For	Companies aiming to scale globally with minimal overhead.	Domestic-focused businesses seeking enhanced HR support without relinquishing full control.	Companies willing to invest in full control and compliance in international markets.

Also Read: Employer of Record vs. PEO: What's the Difference?

‍

Switching Between EOR To Legal Entity Or Vice Versa

Switching between employer of record companies and setting up your own legal entity, or vice versa, hinges on your goals. If cost savings, compliance simplicity, and operational flexibility are your priorities, work with an employer of record EOR services.

Conversely, setting up your own entity grants you full control over your operations but at a steeper cost. You assume all legal and compliance responsibilities, which can be resource-intensive. For businesses aiming to solidify their presence in a specific market with extensive resources, this approach can be beneficial.

Working with the best EORs means you tap into a streamlined global HR ecosystem. EOR services handle local labor laws, reducing your administrative burden. This allows you to hire global workforces without the need to establish a local entity, thus slashing overhead costs. EOR allows you to hire swiftly and scale operations, ideal for dynamic markets.

EORs vs. Staffing Agencies

Staffing agencies differ from EORs, PEOs, and setting up your own entities primarily in their scope and function. While staffing agencies focus on recruiting and placing temporary or permanent employees, they do not handle payroll, compliance, or benefits administration.

Unlike EORs, staffing agencies leave the client company as the legal employer. This means the client remains responsible for compliance with local labor laws and other employer obligations, whereas EORs and PEOs manage these aspects on behalf of the company.

How can Playroll's EOR services transform your business's approach to global expansion?

In this complex landscape, Playroll emerges not just as a provider but as a navigator, offering clarity and direction in choosing the best employer of record to simplify market entry. Ready to streamline your global expansion? Request a Playroll demo today.