EOR Service or Local Entity: Which is Right for Your Business?

Expansion promotes business growth. Businesses expand not just due to growing revenue but also to reach new markets and tap into diverse talent pool, which is not accessible locally. However, it requires careful planning and well-defined end goals including the right selection of target market based on the business’s requirements.

One of the most crucial decisions is to choose the right employment model - to establish a physical presence or to expand remotely with the help of an Employer of Record (EOR).  

Both options offer benefits, and the right choice really depends on what the business needs at that point. This blog explores both options and when each one might make sense.

Employer of Record (EOR)

An Employer of Record helps to hire employees internationally under its identity without requiring to establish a local entity. It is a third-party service provider that manages employee onboarding, payroll, taxes and benefits while adhering to the laws of client’s target region. It mitigates risks of non-compliance.

Moreover, it also provides quick market entry, helping its clients to avoid the hassle associated with hiring talent and setting up an entity.  EOR is helpful when companies want to reduce risk and keep the process lean in the early stages.

When to use an EOR

Companies should consider using an EOR when:

• Testing a new market
• Swift hiring or short-term hiring
• Avoiding administrative overheads and paperwork
• When unfamiliar with legal and compliance landscape

Local Entity

Local entity is a physically present and registered entity. In order to expand operations and market reach, companies establish their branch or subsidiary in their target region. This gives them an opportunity to hire talented individuals and gain credibility. However, establishing a local entity requires adherence to local labor laws and compliance.

Setting up a local entity means establishing a legal presence like a branch or a subsidiary in the new country. It involves registering the business with local authorities, adhering to local laws, and running operations within that jurisdiction.

The main advantage of this approach is full control over the business and team on the ground. It also helps in building amore permanent, long-term presence and gaining local networks.

When to set up a Local Entity

Setting up a local entity is better suited for situations when:

• Planning long-term market presence
• Having full control over employee and operations
• Hiring at scale
• Need for local licenses, permits, contracts and bank accounts
• Building a local brand

Comparing and Choosing the Right Approach

To make an informed selection between EOR vs Local Entity, there are some critical factors that must be compared.

Final Thoughts: How to Decide

There is no one-size-fits-all answer. The right approach depends on the business goals, timeframe, team size and the risk appetite of the company.

• Companies should choose an EOR if speed, flexibility, and lower commitment are a priority.
• A local company should set up when the business in ready to invest for long-term and wants full operational control.

Many businesses start with an EOR and later transition to a local entity as they gain traction.