EOR vs Entity Setup

You closed the Series B on a Tuesday. By Thursday the head of engineering has emailed five names in Berlin she wants to hire by the end of the quarter. The CFO wants to know what it costs.

The general counsel wants to know what it commits you to.

This is the entity-versus-EOR decision. Most growth-stage companies make it three or four times across different countries, and the right answer in Germany is often the wrong answer in Singapore or Brazil. What follows is the framework for working it out, with the cost structures, timelines, and trade-offs laid out in numbers you can drop into a board memo.

The core difference: what you own under each model

Entity setup means registering a local legal entity: a GmbH in Germany, a Ltd. in the UK, an SAS in France. That entity becomes the legal employer of anyone you hire in that country. You own the relationship end to end, and you own the obligations end to end.

An Employer of Record is a third-party company that already has a legal entity in the country you want to hire in. They sign the employment contract with your candidate, run payroll, withhold taxes, and handle terminations. You pay them a monthly fee, typically $400 to $600 per employee per month, and you direct the day-to-day work as if the person were your employee.

Legally, they are not.

Under EOR, you do not own the employment relationship. If you want to grant equity, build a long-term comp plan, or run a country-specific benefits programme, you are constrained by what the EOR allows. The model you pick defines who carries the legal risk, who owns the data, and who has hire and fire authority on paper.

Entity setup: what it actually takes to register in a new country

The brochure version of entity setup says “two to four months.” The honest version is two to six, with another month of slippage for any country that requires a local director or a notarised process. Germany is a good worked example.

The registration sequence in Germany

To open a GmbH you need a notarised articles of association, a minimum share capital of EUR 25,000 deposited in a German bank account before registration, a local registered office, and a managing director who can be non-resident but must accept formal liability. The notary appointment alone takes three to four weeks. Bank account opening runs six to twelve weeks.

Then the commercial register filing takes two to six weeks, followed by registration with the tax office, social insurance authorities, and chamber of commerce.

The practical timeline is four to six months from kickoff to running payroll. Legal and accounting fees come in at $15,000 to $35,000 for a clean setup, plus the share capital you have to leave parked. If anything goes wrong, add another two months and $5,000.

Country variation

The UK is the easiest major market: a Ltd. company registers in two to three weeks for under $3,000 in fees, no minimum capital, no local director requirement. Singapore is similarly fast but requires one resident director (solved by a nominee for $200 to $400 a month).

France takes three to four months. Brazil and India sit at the painful end: six to nine months, $40,000 to $60,000 in fees, and ongoing complexity most companies underestimate by a factor of two.

The rule: if you are testing whether a market works, do not start with entity setup. Use EOR for the first one to three hires, validate the bet, then commit once you know the headcount will justify it.

Ongoing entity obligations: what you manage after registration

Registration is the front-loaded cost. The recurring cost is the part that surprises companies who modelled the decision on setup fees alone.

Once your entity is live, you are responsible for monthly payroll filings, social insurance contributions, quarterly VAT returns, annual statutory accounts, annual tax returns, transfer pricing documentation, and local employment law compliance on every contract change, termination, and leave request. The hands-on workload runs $1,500 to $3,500 per month in local payroll provider plus accounting fees for a small entity.

A 10-person entity in Germany typically costs $3,000 to $5,000 a month in ongoing professional fees alone, before a single salary is paid. The wallet impact: a 5-person German entity costs roughly $50,000 to $70,000 a year in fixed overheads. Someone on your team will own relationships with three or four local providers, typically half a head’s worth of operations time not included in the original cost model.

EOR: the cost structure and what you give up for the convenience

EOR pricing is simpler. You pay a flat monthly fee per employee on top of gross salary and statutory employer costs. The fee covers the EOR’s local entity, contract administration, payroll processing, statutory filings, and a layer of HR support.

Typical pricing across the major EORs (Deel, Remote, Multiplier, Velocity Global, Rippling EOR, Globalization Partners) lands at $400 to $600 per employee per month for standard-complexity countries, rising to $700 to $900 for Brazil, China, and Argentina.

For a 5-person German team, that is $24,000 to $36,000 a year in EOR fees. No setup cost, no registration timeline, no director liability. You can hire in six business days and exit the country in 30 days if the bet does not work.

What you give up:

• Equity grants get awkward. EOR employees have no direct employment relationship with your company, so options or RSUs require careful structuring. In the Netherlands and parts of Latin America, EOR-employee equity grants are effectively unworkable without a local entity.
• Benefits flexibility is limited. EORs offer a benefits stack tied to their local entity. For a 5-person team this is fine; for a 20-person team it starts to feel restrictive.
• You do not own the employment data. If you switch EORs, you migrate the contracts. If your EOR gets acquired, you have limited leverage.
• The recurring cost compounds. Per-employee fees that look reasonable at 3 hires become significant at 15.

The wallet rule: EOR is operationally cheap for the first 12 to 24 months, and structurally expensive after that.

The headcount crossover: when entity becomes cheaper than EOR

The crossover point is the headcount at which fixed entity costs become smaller than the variable EOR fees you are paying for the same team.

The Germany worked example

Assume EOR fees of $500 per employee per month ($6,000/year). Assume entity overheads of $60,000 a year. The crossover: $60,000 / $6,000 = 10 employees.

At fewer than 10 hires, EOR is cheaper. Above 10, entity wins on cost alone.

Country variation

• UK: entity overheads roughly $25,000 to $35,000/year. Crossover at 5 to 6 employees.
• Singapore: $30,000 to $45,000/year ongoing. Crossover at 6 to 8 employees.
• Germany: $50,000 to $70,000/year ongoing. Crossover at 8 to 12 employees.
• France: $60,000 to $90,000/year ongoing. Crossover at 10 to 15 employees.
• Brazil: $80,000 to $120,000/year ongoing. Crossover at 12 to 18 employees.

The strategic adjustment

Time horizon. If you expect to be in the country for less than three years, EOR almost always wins because you avoid front-loaded setup and wind-down costs (entity dissolution takes 6 to 12 months and costs $10,000 to $25,000 in legal fees). For 5+ years, entity wins earlier than the pure crossover suggests.

Strategic value. Some hires need entity from day one regardless of headcount: a country GM, a senior leader who needs equity, a regulated role. If your first hire is a country head, you are likely setting up an entity within 12 months whether the cost crossover supports it or not.

The decision rule: model the crossover, adjust for horizon, then sense-check against the strategic direction. If the answer is “we will be at 10 people in this country within 18 months,” start the entity work now. If the answer is “we are testing whether the market works,” stay on EOR until you have proof.

Control and flexibility: equity, benefits, and employment terms

Most EORs now support equity grants in major markets, but the structure is awkward. In countries with strict employment-equity linkage (Germany has specific rules on virtual stock options for non-employees; the Netherlands treats EOR equity as taxable on grant rather than vest), the result is either higher tax for the employee or lower retention value. If equity is a meaningful part of comp, entity wins.

EOR benefits stacks are competitive for standard hires but inflexible at the edges. If you want a specific pension contribution rate, a private health plan, or a parental leave top-up, the EOR may not accommodate it. Entities give you full control over benefits design, which matters more for senior hires.

EOR templates are conservative by design. The friction shows up in negotiations with senior candidates: a VP of Sales in Munich leaving a German Mittelstand company may push back hard on an EOR contract that does not match the protections she is giving up. On entity, you can match.

On EOR, you may have to negotiate a workaround that makes the offer look thin.

Speed to hire and migration path

From signed offer letter to first day of work, EOR typically takes 5 to 10 business days. If your entity is already live, hiring through it takes three to four weeks. If it is not yet live, you cannot hire on entity at all.

Bridge through EOR, or risk misclassification with a contractor arrangement.

Once you decide to move from EOR to entity, the migration is a coordinated 60- to 90-day process. Month 0: entity completes, bank account opens, payroll provider onboarded. Month 1: local counsel drafts new contracts matching or exceeding current EOR terms.

Month 2: employees sign new contracts; EOR notified of contract end. Month 3: first entity payroll cycle with year-to-date tax data transferred from EOR.

Three migration traps to avoid: benefits coverage gaps (overlap by at least a week), year-to-date tax mismatches (solve with the local tax authority before migration), and contract terms that quietly weaken (audit clause-by-clause before sending). A clean migration costs $5,000 to $15,000 per country. A botched one can run into six figures if you lose a senior hire or trigger a labour dispute.

Frequently asked questions

Can I run some employees on entity and some on EOR in the same country?

Yes. It doubles the admin: two payroll providers, two benefit stacks, two sets of statutory filings. Most companies migrate everyone within 6 to 12 months of entity setup.

Does using EOR mean we cannot grant equity?

No, but the structure is harder. In some countries the grant is taxable at grant under EOR rather than at vest under entity employment, which materially weakens retention value. Talk to your equity counsel before assuming EOR preserves option economics.

How do we handle terminations under EOR?

The EOR executes the termination, but you decide and you pay. Local statutory severance applies, plus any contractual notice period, plus the EOR’s administrative fee (typically $500 to $2,000). Read the EOR’s indemnity clauses carefully.

If the termination is contested, the EOR will manage the response in their own interest rather than yours.

What happens to our entity if we want to exit the country?

Entity wind-down in Germany takes 12 to 18 months. Total cost runs $15,000 to $30,000 in legal, accounting, and tax close-out fees. EOR exits are 30 to 60 days with statutory notice and severance.

Are EOR fees negotiable?

Yes, especially above 10 employees. List price runs $499 to $599/month. Negotiated rates at 20+ employees often land at $350 to $450.

Annual prepay buys another 5 to 10% discount.

How do we decide which model for which country?

Run four questions: (1) what is the strategic horizon for this market; (2) what is the expected headcount in 18 and 36 months; (3) what is the country’s entity setup cost and ongoing overhead; (4) are there role-specific reasons that force entity regardless of cost. If two of three answers point to entity, start the registration work now.