The question comes up the same way almost every time: a business has found the right person for a role, that person happens to live in a country the business doesn't operate in yet, and someone has to decide how to actually put them on payroll. The two real options are Employer of Record (EOR) or setting up a local legal entity. Most of the time, the decision gets made on instinct rather than on the three things that actually matter.
1. How many people, and how fast
EOR makes sense for one hire, or three, or the first handful while you find out whether the market is worth the investment. Entity setup starts making financial sense once you're looking at a headcount that will keep growing for years, because the fixed costs of incorporation, local accounting and compliance infrastructure get spread across more people. There's no universal headcount where the maths flips, it depends on the country, but if you're picturing a team of two by year three, an entity is very likely the wrong tool.
A rough way to think about it: EOR has a per-employee cost that stays flat as you add people. Entity setup has a large fixed cost up front and a lower marginal cost per employee after that. Plot your expected headcount over 24 months against both cost curves and the answer is usually obvious once you actually do it, rather than guess at it.
2. How fast you need the person working
Entity establishment realistically takes anywhere from six weeks to six months depending on the country, and that's before you can legally put someone on payroll there. EOR can have someone compliantly employed within days, sometimes within a week, because the legal entity already exists and you're using it. If the hire is time-sensitive, a competitor is also trying to hire the same person, a project has a hard start date, EOR is usually the only option that fits the timeline.
3. Whether you actually want a permanent presence
This is the question people skip. An entity isn't just a payroll mechanism, it's a permanent commercial and legal presence in that country: local tax filings, statutory audits, a registered address, ongoing compliance obligations that don't go away even if the original reason for hiring there does. If you're testing a market and might pull out in eighteen months, an entity is a liability you'll need to formally wind down, which is its own slow and expensive process. EOR has a clean exit: the contract ends, there's no entity left behind to dissolve.
The practical version
Start with EOR unless you already know, with real confidence, that the headcount and the timeline justify an entity. Moving from EOR to an entity later is straightforward once the business case is proven. Moving the other way, unwinding an entity you didn't need, is slower and costs more than it would have to just start with EOR in the first place.
TPG runs EOR across the Middle East, Africa, Europe, Asia and North America, and can walk through the specific numbers for your situation.
Talk to us about EOR