Jack Thorogood, Founder and CEO at Native Teams — a global platform for work payments and employment, operates in 85+ countries.
Expanding internationally has never been easier, but doing so wisely is a different matter. With just a few clicks, companies can onboard talent in Germany, Brazil or Japan and have them on payroll almost instantly. Employer of Record (EOR) providers offer fast market entry with legal compliance out of the box, while establishing local entities delivers long-term control, efficiency and institutional maturity. The transition between the two isn’t an “either/or” decision; it’s a thoughtfully timed evolution.
However, this evolution is far more strategic than binary. The global EOR market, valued at approximately $5.59 billion in 2025, is growing steadily, with adoption by both multinational corporations and SMEs alike. Meanwhile, setting up a local entity continues to be a critical step for companies with long-term hiring goals and plans, according to HR strategists.
The smartest founders don’t see global expansion as a binary choice, but as a journey with stages where pace is a top concern and control comes next.
Stage One: Renting Compliance For Speed And Flexibility
The first stage of global hiring is all about speed. If you’re testing demand in a new market or tapping into a specialized talent pool, EORs make it possible to hire quickly without setting up a local subsidiary. For lean startups or scale-ups seeking efficiency, this is invaluable.
Costs, however, add up faster than many anticipate. In my review of independent EOR providers in 2025, EOR pricing typically ranges between $199 and $650 per employee per month. Some providers instead charge a percentage of payroll, with rates falling between 5% and 10% depending on the jurisdiction and service complexity.
Hidden fees make the financial picture even more complex. Cost-optimization research shows that cost visibility, including vendor and outsourcing overheads, is a critical factor in preventing budget creep. Yet, many organizations underestimate the cumulative impact of fees tied to onboarding, contract amendments, visa support and FX markups.
This points to one thing: While EORs are perfect for reducing barriers to entry, they were never designed as permanent solutions. They’re ideal for testing new markets, but the economics shift once head count grows or business operations mature.
Stage Two: Owning Compliance For Control And Efficiency
At a certain point, speed is no longer the top priority. Control and sustainability take over. Establishing your own legal entity in a new market provides long-term advantages that EORs can’t match. Once incorporated, companies gain full authority over payroll, benefits, contracts and employment terms, allowing for customized policies and deeper cultural integration.
Take the Netherlands as an example. Setting up an entity requires engagement with notarial, legal and tax professionals, while the first-year incorporation-related fees can total from 5,000 euros to 30,000 euros ($5,800 to $35,000 USD). These costs vary widely depending on the provider; some modern platforms can do it for significantly less, but the upfront investment pays off long-term compared to recurring EOR fees.
Owning an entity also builds credibility with local stakeholders, employees, banks and regulators, which becomes increasingly important as your footprint grows.
However, entity ownership also comes with responsibility. Businesses must manage compliance directly, understand their tax obligations and adhere to local reporting standards. That’s why the transition should be timed carefully, ideally when both operational demand and head count justify the shift.
The Hidden Cost Of Staying On EOR Too Long
EOR margins may seem manageable in the early stages, but they can escalate quickly as teams grow. What feels like a minor expense with a handful of employees can become a significant cost driver as your head count increases. Over time, the balance often shifts, and continuing to “rent” compliance through an EOR can become less efficient than establishing a local entity.
Beyond costs, some countries enforce strict limits on how long you can rely on EORs. For example, according to Germany’s Temporary Employment Act, the legal limit for assigning an employee to a third party is 18 months, while France restricts them to 36 months. Prolonged use of EOR can create both financial inefficiencies and compliance risks, making early planning critical for a smooth transition.
Recognizing The Tipping Point
When your business is using an EOR provider, the moment to shift toward owning compliance doesn’t announce itself with a headline. Instead, it shows up in organizational rhythms, signaling that your model is being stretched past its flexibility.
One early indicator is friction in HR and benefits administration. As teams grow, many companies notice that policies and approvals routed through third-party providers become slower and less responsive.
Another telling sign comes when employee expectations around benefits and workplace experience escalate. As employees seek stability and engagement, these perks become a cornerstone to consider when staying or leaving an employer.
Employer branding also plays a part, often subtly but powerfully. With hybrid and flexible work models now commonplace, companies with local entities are increasingly seen as established and committed.
Why Do You Need Both Solutions To Grow
Many companies fall into the trap of treating EORs and entity setups as opposing paths. In truth, they’re strategically complementary, each essential at different phases of international expansion.
EORs offer unmatched speed and flexibility. In 2025, over 58% of companies expanding globally used EOR platforms to bypass entity complexities, with 41% of HR managers reporting faster onboarding, cutting time by 35% and reducing compliance risk by 47%. These platforms allow startups to hire quickly and validate new markets in weeks, not months.
However, companies managing their own entities save more annually thanks to reduced fees, localized compliance and streamlined oversight. There’s also operational peace of mind in knowing you have full control over HR policies, culture and legal obligations in a market where your team is growing.
Founders who succeed at global hiring don’t pick one or the other; they blend them. A hybrid approach enables speed when entering new markets, and efficiency and control as you scale. In fact, companies following this model are those best positioned for both rapid expansion and long-term sustainability.
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