Global expansion means employing people, serving customers and meeting tax obligations in a country where your business has no legal presence yet. There are three ways to do it, and the choice comes down to one question: how reversible does this decision need to be?
- Contractors – live in days, almost no fixed cost, and by far the highest legal exposure. For genuinely independent project work, not for your first full-time hire.
- An Employer of Record – a compliant hire in 3 to 21 days, a flat per-employee fee, no entity to build or unwind. The route for validating a market.
- Your own entity – six weeks to six months to reach operational payroll, a five-figure sum to open, and at least a year to close in some countries. The route once the market is proven.
The short version: use contractors for work, an EOR for people, and an entity for commitment. Most companies get this wrong by choosing the entity first, because incorporation feels like the milestone. It is the least reversible of the three, and reversibility is the only thing that matters while a market is still a hypothesis.
The three routes, compared
| Contractors | Employer of Record | Your own entity | |
|---|---|---|---|
| Time to first legal hire | 1–5 days | 3–21 days depending on the country | 6 weeks to 6 months to operational payroll |
| Cost to start | Contract review | None, sometimes a refundable deposit | Statutory fees are trivial; the professional layer is a five-figure sum |
| Recurring cost | The invoice | Flat fee per employee per month, plus 100% of local statutory employer cost | Local payroll, accounting, audit, filings, local director or company secretary where required |
| Legal employer | Nobody — they employ themselves | The EOR | You |
| Who carries the compliance risk | You, and it is the largest of the three | The EOR, contractually, in the countries it is licensed in | You, entirely |
| Control over pay and policy | Rate only | Salary and role yours; the statutory benefits shell is the EOR’s | Full |
| Cost to reverse | End the engagement | Serve notice | Slow and expensive — see the exit section |
| Can you invoice locally | No | No | Yes |
| Best for | Genuinely independent, multi-client, scoped work | Validating a market; 1–20 people per country; countries you may leave | Proven revenue, local contracting, sustained headcount, regulated activity |
| Breaks when | The person becomes integrated, exclusive or effectively full-time | You need bespoke benefits or equity, or the market reads EOR as impermanence | Demand turns out to be unproven |
These are not a progression you must climb in order. Plenty of companies run contractors in one country, an EOR in six, and entities in two, permanently. The mistake is applying one route everywhere because it is the one you already understand.
If you want the route decision made against your own numbers rather than in the abstract, our global hiring guides set out the local rules country by country.
The number that decides your budget is not the fee
Almost every comparison of these routes argues about the EOR fee. It is rarely the number that matters. Statutory employer cost — the social security, pension and insurance contributions you owe on top of gross salary — varies by roughly 30 percentage points across major markets, and you pay it on every route including your own entity.
| Country | Employer cost as % of gross | Detail |
|---|---|---|
| France | ~45% | Average across contributions; several separate ceilings apply |
| Italy | ~30% | Employer share of a total burden near 40%; varies by sector, category and employer size |
| Germany | ~21% | Pension 9.3%, unemployment 1.3%, health 7.3% plus a fund supplement, long-term care 1.8%, insolvency 0.15% — plus uncapped sector accident insurance. Contribution ceilings apply at €101,400 and €69,750 |
| Brazil | 20–22.5% base | Base INSS by sector, plus further sector-dependent charges |
| United Kingdom | 15% | Employer secondary Class 1 National Insurance above the secondary threshold, less Employment Allowance where eligible |
| India | 12% | Employer EPF, matched by a 12% employee contribution |
Rates are employer contributions only and exclude gross salary. Sources: PwC Worldwide Tax Summaries (France, Italy, Germany, Brazil, India); HMRC rates and thresholds for employers (United Kingdom). Last reviewed [Month Year].
The comparison worth making
On a $100,000 salary, the employer on-cost gap between France and the UK is about $30,000 a year. At published EOR list prices that is roughly four years of EOR fees for one employee.
Which means: a route decision taken to save fees, in a country chosen without checking on-costs, optimises the smaller number and ignores the larger one. Pick the country on total cost. Then pick the route.
Germany is worth singling out, because the figure most often quoted is “about 20%”. The actual build-up is 21.15–21.3% before sector accident insurance, which is uncapped. If you are modelling German headcount, model the higher number. For the UK equivalent, our employer National Insurance rate card has the current thresholds and a worked example.
Entity or EOR: the breakeven, with the maths
The crossover point is arithmetic, and it is worth doing before anyone builds a business case around a feeling.
Annual EOR cost = headcount × 12 × monthly fee per employee
Annual entity cost = (setup ÷ years you will amortise it) + annual compliance cost
Breakeven headcount = annual entity cost ÷ annual EOR cost per employee
A worked example, using published EOR list pricing and an indicative entity cost:
| Input | Value | Annualised |
|---|---|---|
| Entity setup, all in, amortised over 3 years | $18,000 | $6,000 |
| Annual entity compliance — bookkeeping, audit, filings, local officer | $24,000 | $24,000 |
| Total annual entity cost | — | $30,000 |
| EOR fee, published flat list price | $599 / employee / month | $7,188 per employee |
| Arithmetic breakeven | $30,000 ÷ $7,188 | 4.2 employees |
The setup and compliance figures are indicative planning placeholders, not published rates — no authoritative public dataset exists for either, so replace them with your own quotes before relying on the result. The EOR fee is a published list price. Last reviewed [August 2026].
So the spreadsheet says four to five people. In practice the real crossover sits meaningfully higher, for three reasons the spreadsheet does not hold:
- Your own time. An entity means someone internally owns local filings, statutory deadlines and employment law changes. That role is rarely costed, and it is not free.
- The cost of being wrong. An EOR carries the compliance risk contractually. With your own entity, a misapplied collective agreement or a missed filing is your liability.
- The cost of exit, which the setup number never includes.
A defensible planning band: the entity starts to win somewhere between 8 and 15 employees in a single country, later than that in high-compliance markets, and earlier than that if you need local invoicing or a local licence for reasons that have nothing to do with headcount.
How long each route actually takes
Time-to-hire is where the EOR case is strongest and where entity plans slip most often. The single most underestimated step in entity formation is not incorporation — it is opening the local bank account, which can take two to three months on its own.
| Market | Compliant hire via an EOR | Note |
|---|---|---|
| Singapore, Hong Kong, UAE | 3–7 days | Fastest onboarding of the major hubs |
| UK, Ireland, Netherlands | 5–10 days | Right-to-work checks come first. A Dutch BSN must be obtained by the employee in person and cannot be applied for by the employer |
| United States | 5–10 days | Add 3–5 days for California, New York or Massachusetts |
| India | 7–14 days | EPF and ESI enrolment run alongside onboarding and must be in place for the first payroll run |
| France | 10–14 days | The DPAE must be filed with URSSAF within the eight days before the start date; it also triggers occupational health enrolment |
| Germany | 10–21 days | Tax ID and social security number arrive by post |
| Japan, Brazil | 14–28 days | Brazil requires the admission to be registered in eSocial at least one business day before the start date |
| China | 21–45 days | See our guide to hiring in China without an entity |
Add four to twelve weeks on any route where the hire needs a visa or is serving notice. Onboarding ranges are indicative and vary by provider, role and document readiness. Sources: URSSAF / net-entreprises.fr (DPAE); Business.gov.nl (BSN registration); eSocial admission reporting (Brazil). Last reviewed [August 2026].
A correction worth making, because the internet gets this wrong
The 75% rule in Spain is widely described as automatic reclassification as an employee. It is not. It creates TRADE status (trabajador autónomo económicamente dependiente) — a distinct legal category with its own registration and contract requirements, sitting between self-employment and employment. Failing to formalise it is the breach; and a genuine falso autónomo finding is a separate and more serious matter.
Getting this distinction right matters practically: the remedy for crossing 75% is to formalise the relationship, not to panic-convert the person to an employee.
Source: Ley 20/2007, Estatuto del Trabajo Autónomo (Spain).
The clearest single trigger to watch is a contractor who has become full-time in everything but name. Our guide to switching from contractor to EOR in Germany works through what that transition looks like in practice, and hiring in China without an entity covers a market where the contractor route barely exists.
When to switch route
Contractor to EOR
- They work only for you, or you represent the large majority of their income — Spain formalises this at 75%; other regulators infer it
- They work your hours, on your systems, with your email address, inside your org chart
- The engagement passes twelve months with no defined end point
- You want to enforce a non-compete, own IP by default, or grant equity
- You need them to manage your employees — a contractor who manages employees is very difficult to defend
EOR to your own entity
- Headcount has passed the breakeven band and is still growing
- You need to invoice locally, register for local VAT, hold a licence, or bid for public contracts
- Candidates at the seniority you are now hiring decline EOR employment
- You need a bespoke benefits or equity arrangement the EOR shell cannot carry
- The market is core to your plan for at least the next five years
And the direction nobody plans for: entity back to EOR. If you scale down in a market, the entity does not simply switch off.
The exit cost nobody models
Every route comparison covers setup. Almost none covers shutdown, which is where the real asymmetry between the three routes sits.
| Route | Cost and time to exit |
|---|---|
| Contractors | Notice under the contract. Effectively immediate — but any misclassification exposure survives the exit and remains open for the local look-back period, which is four years in Germany and Spain and can be far longer. |
| EOR | Statutory notice and any severance for the employee. No corporate unwind. |
| Own entity | A formal process. A UK solvent liquidation starts around £3,500 plus VAT; an insolvent one £4,000–5,000 to initiate. A German GmbH must observe a statutory one-year creditor blocking period before final assets can be distributed — twelve months minimum, whatever the commercial urgency. India’s annual compliance obligations continue until the entity is formally struck off, and late filings accrue daily penalties with no cap. |
Liquidation figures are UK insolvency practitioner fee ranges and exclude disbursements, creditor claims and tax settlement. Sources: UK MVL and CVL practitioner fee ranges; German GmbH Act creditor blocking period (Sperrjahr); Companies Act ROC late-filing penalties (India). Last reviewed [August 2026].
This is the strongest argument for staying on an EOR longer than your headcount alone suggests. An entity you may need to close within three years is a decision with a twelve-month tail attached.
Country-readiness checklist
Score one point for each statement that is true of the market you are considering, today, with evidence. Not “we could find out” — true now.
Demand
- You have at least three closed-won customers in the market, or a signed, weighted pipeline.
- Revenue already in the market covers the fully loaded cost of the first hire for twelve months.
- A named person owns the market’s P&L, not just the project.
Legal and tax
- You know whether your activity creates a permanent establishment, and you have taken advice on it.
- You have confirmed whether your activity requires a local licence or registration.
- You have budgeted the employer on-cost percentage, not just the salary.
- You know the statutory notice, probation and severance rules for the roles you are hiring.
- You have checked whether a collective bargaining agreement applies to those roles.
Operations
- Your data transfer and privacy position for the market is documented.
- You can pay people in local currency, on the statutory pay date, at the statutory frequency.
- You know the cost and timeline to exit the route you are choosing.
- The first role is defined for this market, not copied from the headquarters org chart.
| Score | What it means |
|---|---|
| 0–5 | Not ready to employ anyone. Use partners, distributors or genuinely independent contractors, and go back to demand. |
| 6–9 | Ready to employ, not ready to incorporate. This is the EOR window, and most companies are here for longer than they expect. |
| 10–12 | An entity is defensible — if headcount also justifies the fixed cost and you intend to be in the market for at least five years. |
Score one point for each of the twelve statements above that is true of this market today, with evidence — not “we could find out”. Score each market separately; readiness does not transfer between countries.
Your first hire sets the ceiling
Once the route is chosen, the remaining variable is who you put in the market first. That hire becomes your commercial presence, your cultural translator and your only real source of local intelligence — and a poor one stalls a market for two or three quarters, because you lose the hire, the time and the read on the market simultaneously.
What to weight, in this order:
- Can they build with minimal structure from headquarters? Nothing about the first year will be well-defined.
- Market fluency. Do they understand how your value proposition actually lands against local alternatives and local buying behaviour?
- Cross-cultural translation. Can they carry expectations in both directions? This is a separate skill from language.
- Do they bring relationships that shorten the path to a first customer or a second hire?
And sequence deliberately: someone who can establish presence and build pipeline, then operational support once the shape of the work is clear, then functional specialists as volume demands them. Do not replicate the headquarters structure. Build for the stage this market is at, not the stage your business is at.
If you are unsure what a defensible package looks like locally — statutory minimums, market benefits, notice terms — that is worth taking advice on before you make an offer. Our HR advisory and Employer of Record teams do this country by country.
Conclusion
The companies that make global expansion a competitive advantage are not the ones that enter the most markets fastest. They are the ones that keep their options open until the market has told them something, and that treat the route decision as a cost-of-being-wrong calculation rather than a statement of ambition.
Contractors for work. An EOR for people. An entity for commitment. In that order, and only when the numbers say so.
If you want this decision run against your own headcount plan and target markets, talk to our team — or start with the country hiring guides for the markets you are considering.
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