You have found the right person. They live in a country where your company has no legal presence. You now have two options, and the wrong one costs either time or money — usually both.
The short version
Setting up an entity makes sense when you are committing to a market: several hires, a multi-year horizon, and probably revenue in that country. An employer of record makes sense when you want one person, or a handful, without committing to the market itself.
The mistake is treating this as a cost comparison. It is a commitment decision. An entity is cheap per head once you have twenty people and expensive if you have two.
What setting up an entity actually involves
Incorporating in a new country is not a form. Depending on where you are going, it typically means:
- Registration and incorporation, which can take anywhere from two weeks to several months
- A local registered address, and in some countries a resident director
- Minimum share capital, deposited before you can trade
- Tax registration — corporate tax, payroll tax, and usually VAT or its local equivalent
- A local bank account, which is frequently the slowest step
- Payroll infrastructure, either in-house or outsourced
- Statutory filings that continue for as long as the entity exists
The last point is the one people underestimate. An entity is not a one-off cost. It generates obligations every year — accounts, returns, filings — whether or not anybody is employed through it.
What an employer of record does instead
An employer of record already has an entity in the country. They employ your hire on their own payroll, under a local contract that complies with local law. You direct the work; they carry the employment relationship.
In practice that means:
- The employee has a compliant local contract from day one
- Payroll, tax withholding, and social contributions are handled
- Statutory benefits — leave, sick pay, pension, whatever the country requires — are applied correctly
- Termination follows local rules, which vary enormously and are where most self-managed arrangements go wrong
Your hire starts in days or weeks rather than months. You have no entity to wind down if the market does not work out.
The decision in practice
An employer of record fits when:
You are hiring one to five people in a country. You are testing whether a market works before committing. You need someone starting soon and cannot wait for incorporation. The role is remote and the country is incidental — you wanted the person, not the location. You are covering a fixed-term project.
An entity fits when:
You are building a team of meaningful size, usually ten or more. You need to sign contracts, invoice clients, or hold assets locally. You are there for the long term and the per-head cost of an EOR starts to exceed the cost of running your own operation. Your sector requires a local licence that only an entity can hold.
A common path is both. Start with an employer of record while you prove the market. Incorporate once the headcount justifies it, then transfer the employees across. A reasonable EOR will support that transition rather than lock you in — it is worth asking about before you sign.
Where people get it wrong
Hiring them as a contractor instead. This is the most common shortcut and the most expensive mistake. If someone works set hours, uses your systems, reports to your managers, and has no other clients, most jurisdictions will treat them as an employee regardless of what the contract says. The penalties for getting this wrong include back taxes, social contributions, and in some countries a presumption of permanent employment with all the termination rights that brings.
Assuming termination works like it does at home. At-will employment is not the global norm. Notice periods, severance formulas, and required procedures vary widely, and several countries require a documented process before a dismissal is valid. This is where companies managing their own foreign payroll most often discover the problem.
Underestimating the benefits piece. Statutory benefits are not optional and vary by country — mandatory pension contributions, thirteenth-month salary, specific leave entitlements. An offer that looks competitive on base salary can be non-compliant on everything around it.
A note on cost
Entity setup costs vary too widely by country to quote a useful figure, and so do EOR fees, which are usually a percentage of salary or a flat monthly amount per employee. What holds generally is the shape of the curve: an EOR costs more per head but has no fixed overhead, while an entity has significant fixed costs that spread across however many people you employ. The crossover point depends on the country and your salary levels.
The better question is not which is cheaper this year, but which is cheaper across the time you actually expect to be in the market.
Where to start
If you are weighing this up, the useful first step is to be specific about three things: how many people you expect to employ in that country within eighteen months, whether you need to trade locally or only employ, and how quickly the first person needs to start.
Those three answers usually make the decision obvious.
Sizanid provides employer of record services in 20+ countries and can also recruit the person in the first place. If you are working through this, [start a conversation](/find-talent) and we will tell you honestly which route fits — including when the answer is that you should incorporate.
