The Pros and Cons of Employer of Record vs. Setting Up a Local Entity

Expanding into new markets is a major business milestone, yet it presents significant operational and legal challenges, especially when hiring talent in countries without a registered legal presence.

Two key options surface: partnering with an Employer of Record (EOR) or establishing a local legal entity. Each path has distinct advantages, hurdles, and long-term impacts. This blog unpacks both approaches to help align your choice with your business goals.

What is an Employer of Record?

An Employer of Record is a third-party provider that legally employs workers on your behalf in markets where your business isn’t locally registered. The EOR manages all employment responsibilities, payroll, taxes, compliance, contracts, and benefits, while your company retains control over daily tasks and performance.

This model suits businesses that want to:

Test new markets without a formal legal setup
Quickly onboard remote or international talent
Support short-term or project-based hires
Avoid navigating complex local labour laws

By using an EOR, global expansion happens faster with reduced risk and limited upfront commitment.

What does setting up a local entity entail?

Creating a local entity means formally registering your business in a new country, often as a subsidiary or branch. This involves legal registration, bank account setup, hiring local directors, tax registration, and ongoing compliance with employment laws.

Companies typically pursue this route when they:

Intend a long-term, strategic market presence
Plan to hire and support a larger local workforce
Require full operational and employment control
Need to establish local brand credibility and client relationships

While offering autonomy and stability, local entities require significant time, upfront investment and legal complexity.

Comparing the pros and cons

Aspect	Employer of Record (EOR)	Local Entity
Speed to Market	Hire within days to weeks	It can take weeks to months due to bureaucracy
Upfront Costs	Predictable monthly fees per employee	High registration, legal and infrastructure costs
Compliance Burden	EOR manages payroll, taxes, and labour laws	Your team handles all compliance directly
Control	Limited flexibility in contracts and employment terms	Full autonomy over HR, branding, and operations
Scalability	Rapid hiring across multiple countries is possible	Scaling requires more resources and time
Long-term Suitability	Ideal for short-term projects and market testing	Better for sustainable, long-term market presence
Risk Exposure	Reduced compliance risks, dependent on EOR’s quality	Direct legal, tax, and regulatory risks
Local Brand Presence	Limited local market integration	Stronger local credibility and client relations

Choosing the right model: strategic considerations and risks

Selecting between an EOR and a local entity depends on your business objectives, timing, risk tolerance, and resource availability.

Use an EOR for quick, low-risk entry to test markets or support agile hiring without the need for local infrastructure. It mitigates compliance challenges but limits control over employment terms and local brand presence.
Choose a local entity when you are committed to a market long-term. It offers full control and stronger local integration but requires more time, investment, and administrative expertise.

Each option carries risks: EOR reliance on a third party may impact consistency and brand perception, while local entities expose you to complex legal and tax compliance demands with associated penalties for missteps.

Budget is also critical: EORs have manageable, ongoing fees; local entities carry heavier upfront and operational costs.

How WRS supports your global expansion

WRS helps businesses navigate both models, supporting smooth international hiring, from initial market testing via EORs to the establishment of local entities. With our expertise in global employment solutions, we mitigate risks and streamline compliance so your workforce can scale confidently across borders.