Are you a small business owner ready to hire international employees for the first time? Should you register your own company abroad, or should you use an employer of record for startups instead? Many business owners get stuck comparing the two options.
In this guide, we will walk you through what each option involves and help you decide which one fits your business right now.
EOR Versus Your Own Entity: Quick Comparison
| Employer of Record | Your own entity | |
|---|---|---|
| Time to first hire | Days to a few weeks | 3 to 6 months |
| Upfront cost | Low, no setup capital | $15,000 to $50,000 or more |
| Compliance | Handled by the provider | Your responsibility |
| Ongoing admin | One monthly invoice | Local accountants and filings |
| Best for | 1 to 20 people per country | Large, permanent teams |
What Is an Employer of Record?
An Employer of Record, or EOR, becomes the legal employer of your worker in a country where you have no local company. It signs the employment contract, manages payroll, pays taxes, and provides the benefits required by local law. You still choose who to hire, set their goals, and manage their daily work. The EOR handles the paperwork and legal responsibilities while you keep the team.
Hiring Abroad Without Setting Up an Entity
In countries like the United States or Canada, adding someone to payroll is simple because the systems for taxes, benefits, and compliance already exist. Hiring across borders removes that advantage. You cannot legally employ a full time worker in Indonesia or Vietnam until someone holds:
- A registered local entity
- A local bank account
- The required tax and social security registrations
An EOR already has all of these in place. Your employee can start on day one instead of waiting several months for registration to clear.
Do You Really Need to Set Up Your Own Entity?
Setting up a company in another country may seem like the right step. For an early stage startup, though, it is often not the best option. Here’s why:
Time Consuming and Expensive
Setting up a legal entity means registering a company and opening a local bank account. It also requires completing tax registration and, in some countries, appointing a resident director. Ongoing compliance and filing requirements continue after setup is done. The process often costs between $15,000 and $50,000 or more. It can take three to six months before an employee is legally allowed to start working. During that stretch, your chosen candidate could accept another job offer.
Closing an entity brings its own set of problems. Shutting down a foreign company is often more time consuming and expensive than setting one up. Tax clearances, final audits, and employee obligations can stretch the process out for months. If the entity was only meant to test a new market, closing it can become an unexpected burden.
Hiring Contractors Comes With Risk
Hiring someone as an independent contractor can look like the simplest path. It can still lead to legal problems down the line. In many Southeast Asian countries, authorities examine how a person actually works, not just what the contract states. A worker who is full time, follows your schedule, uses your systems, and works only for your business will likely be classified as an employee.
If that happens, your business can face back taxes and unpaid social security contributions.
Employer of Record Benefits For Startups
An EOR offers several advantages for small, fast growing businesses. They are as follows.
1. Hire Faster Across Borders
One of the biggest reasons startups choose an EOR is speed. Because the provider already operates in the country, employees can often start within days instead of months. This allows businesses to hire quickly and avoid losing strong candidates during long setup processes.
2. Reduce Compliance Risk
Employment laws vary from one country to another, and they change over time. Rules for hiring, employee benefits, mandatory contributions, and termination are all different. If you hire an employee in the Philippines, an EOR makes sure your business follows local labor laws. Philippine law generally requires the two notice rule when dismissing an employee for a valid reason. The employee receives a written notice explaining the grounds. A second notice follows after due process has been completed. The EOR handles both required notices and carries out the termination process lawfully.
3. Reduce Upfront Costs
Setting up a legal entity requires upfront spending on registration, local requirements, and ongoing costs. An EOR removes those expenses entirely. Instead, you pay a fixed monthly fee for each employee. This keeps more of your budget focused on building and growing your business.
4. Offer Better Benefits to Attract Top Talent
Hiring through an EOR gives employees a local contract with the benefits they expect. This includes health coverage, pension contributions, paid leave, and other required benefits. A competitive package helps attract experienced professionals and gives them confidence to join and stay.
5. Avoid Building a Global HR Team
Managing employees across different countries means handling payroll, benefits, and local employment laws in each location. An EOR takes care of these responsibilities on your behalf. You can manage your international team without building a separate HR and compliance team.
6. Hire Remotely
Remote hiring setup opens access to skilled talent across borders, so you are no longer limited to candidates in one city. An EOR can help you onboard talent globally without setting up a company in your desired country. For example, your startup is based in Indonesia and you want to hire a developer in the Philippines. An EOR lets you do this without registering a local entity there first.
7. You Can Exit a Market Without the Headache
If you set up a legal entity, closing it can take months and cost a lot of money. With an EOR, you can test new countries without making a long term legal commitment. You can figure out where your business has the most potential, and exit quickly, if needed, to save both time and money.
What Services Does an EOR Provide?
If you work with a reliable EOR service provider, they typically handle six key areas.
- Employment contracts: They prepare contracts that follow local labor laws, whether you are hiring someone on a fixed term or permanent basis.
- Payroll: They calculate salaries, deduct taxes, and pay employees in their local currency. This includes handling all required employer contributions.
- Social security: They register employees with the right government programs. They also make sure contributions are paid on time.
- Tax compliance: They withhold payroll taxes and file the required reports. This ensures your business meets local tax rules.
- Required employee benefits: They manage legally required benefits, such as bonuses, paid leave, insurance, and pension contributions. Any other benefits required by local law are included as well.
- The full employment process: They handle onboarding, government registrations, leave administration, offboarding, and final pay. Other employment paperwork falls under their responsibility too.
An EOR does not run your business. They do not manage your employees, set company goals, or make hiring decisions for you. You remain fully responsible for your team and your business. The EOR simply handles the legal, payroll, and administrative work that comes with employing people in another country.
What Does an Employer of Record Cost?
The cost depends on the country where you are hiring and the EOR provider you choose. The two most common pricing models are:
- The first is a fixed monthly fee for each employee. This usually ranges from $200 to $1,000 per month. Many businesses end up paying around $400 per employee.
- The second is a percentage of the employee's salary, usually between 8% and 20%. This option can cost less when you are hiring for lower paying roles. A fixed monthly fee, on the other hand, makes it easier to predict your costs.
Additional Costs
The monthly EOR fee is not your only expense. You will also pay your employee's salary and any mandatory employer contributions, such as social security or pension payments. In many Southeast Asian countries, these contributions add about 10% to 20% on top of the employee's salary.
These costs do not come from the EOR itself. They are required by local law, and you would pay them even if you had your own company in that country.
Before you sign an agreement, ask whether the provider charges for the following:
- A one time setup fee for each employee.
- A refundable security deposit, often equal to one to three months of salary.
- Currency conversion or foreign exchange fees.
- Optional services, such as employee benefits, equipment, or immigration support.
When Should You Set Up Your Own Entity?
Using an EOR does not mean you should never set up your own company. It simply means waiting until the timing makes financial sense. As your team grows in one country, transitioning to your own legal entity becomes a realistic option. A good EOR can help transfer your employees without disrupting their employment. Some providers, such as RecruitGo, have a parent company, Emerhub, that can also help you set up your entity.
How to Choose an Employer of Record
Not all EOR providers offer the same level of service. Before you choose a provider, make sure you ask the right questions.
- Do they own their legal entities in the countries where you are hiring, or do they work through third parties?
- Can they provide clear, all inclusive pricing along with a sample invoice?
- Who owns the intellectual property created by your employees?
- How quickly do they handle urgent issues, such as onboarding or employee terminations?
Get Expert Help With Global Expansion in Southeast Asia
Business owners who run into problems when hiring internationally are not usually careless. They simply move quickly without fully understanding the local rules. A short conversation before you hire can save you from costly mistakes later.
If you are planning your first international hire, take time to understand your options before signing any contracts. Getting the structure right from the beginning is far easier and less expensive than fixing it later.
Frequently Asked Questions
Get quick answers to common questions about why startups should use an employer of record to scale globally fast
QWhat is an employer of record for a startup?
It is a company that legally employs your workers in another country on your behalf. It handles the local contract, payroll, taxes, and benefits, while you manage the person and their work.
QHow much does an EOR cost per employee?
Flat-fee providers usually charge $200 to $1,000 per employee each month, often around $400. Some charge 8 to 20 percent of salary instead. The salary and local employer contributions sit on top of that fee.
QCan a startup hire employees in Southeast Asia without a local entity?
Yes, and that is the main reason EORs exist. The provider's entity employs your hire, so you never register a company in Indonesia, the Philippines, or anywhere else you want people.
QHow fast can an EOR onboard someone?
Often within days to a couple of weeks when the provider already operates in that country. RecruitGo onboards in as few as five business days in most markets. Your own entity would take three to six months.
QIs an EOR the same as a PEO or a staffing agency?
No. A staffing agency finds and supplies workers. A PEO co-employs staff where you already have an entity. An EOR is the full legal employer abroad, where you have no entity at all.
QWhat is 13th month pay, and do you have to pay it?
It is an extra month of pay required in some countries. The Philippines mandates it, and Indonesia requires a similar religious holiday bonus called THR. An EOR calculates and pays it on schedule so you stay compliant.
QWho owns the work an EOR employee creates?
Your company should, but only if the contract spells it out. Confirm that intellectual property is assigned to you, not the provider or the worker. A good EOR writes this into the agreement by default.
QCan you move employees from an EOR to your own entity later?
Yes, and plenty of startups do exactly that as they scale. Once your entity is running, the employees transfer over with local legal support. Plan the timing so no one has a gap in employment.
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Mahnoor Jehanzeb specializes in global employment law and EOR solutions. With years of experience in the industry, they help businesses navigate the complexities of international hiring.
