De-risking global growth: Why PE firms are turning to EOR solutions
Supporting the international expansion of portfolio companies remains a well-trodden path for accelerating growth and enterprise value.
While private equity firms bring expertise and capital firepower for M&A, attracting and recruiting top-tier local talent and hiring across multiple jurisdictions is one of the most persistent friction points for PE-backed growth in new markets.
Navigating local labor laws, tax frameworks, and compliance obligations can delay market entry and introduce significant operational risk.
To overcome this, many firms are turning to Employer of Record (EOR) solutions to simplify global hiring, reduce risk, and accelerate entry into new markets.
So how do EOR solutions compared to more traditional methods of expansion? In this article, we’ll explore how PE-backed companies are using EOR solutions to move faster, stay compliant, and scale globally with greater confidence.
The traditional route: legal entity set up
Traditionally, expanding into new international markets relied on establishing a local legal entity before even contemplating hiring any staff. This process involves several complex steps:
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Registering a legal entity with local authorities
This foundational step creates your company’s official legal presence in the target country. This can require extensive documentation and adherence to country-specific corporate laws.
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Navigating varying registration processes
Beyond basic incorporation, companies must establish their operational framework within local systems. This can include tax registrations, social security registrations, and business licensing.
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Opening local bank accounts
A local banking relationship becomes essential for handling payroll, expenses, and business transactions within the country’s financial system. But this process can be complicated by strict financial regulations and verification requirements.
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Complying with local labor laws
Each country maintains its own employment framework that governs how you can legally hire and manage employees. This includes employee benefits, contracts, and payroll systems.
Waiting for entity setup to complete
The entire process requires patience as legal and administrative wheels turn at their own pace. This typically takes three to nine months depending on the country’s legal and regulatory environment.
For portfolio companies aiming to scale rapidly, entity setup poses a significant hurdle. The process can be costly – ranging from $25,000 to $100,000 or more per country – and often delays hiring and market entry by months.
Additionally, once the entity is established, companies must maintain ongoing compliance, managing employment contracts, statutory benefits, tax filings, and local HR infrastructure. This requires dedicated legal and administrative resources.
The alternative route: Employer of Record (EOR)
With the conventional approach often too slow, costly, and rigid for today’s fast-paced investment environment, many leading PE firms are adopting an alternative model using an EOR to act as the legal employer on their behalf. This model enables portfolio companies to access new markets faster, with far less risk and complexity.
With this approach to hiring:
- The EOR handles compliance duties including payroll, tax filings, statutory benefits, and adherence to local labor laws.
- Portfolio companies retain full operational control over their new team’s day-to-day activities, enabling faster market entry without losing governance or control.
- Instead of high upfront entity formation costs, companies pay fees based on the number of employees, making expansion more cost-effective and scalable.
- The EOR model provides flexibility to test new markets without the long-term legal commitments required by traditional entity setups.
- Access to local HR and legal expertise through the EOR helps PE firms proactively manage risks such as contractor misclassification and changing regulations.
In short, instead of waiting months to establish a local legal entity, firms can partner with an EOR provider and be up and running in a few weeks.
Why not just use contractors?
Given the complexity and cost of setting up legal entities, it’s common to initially rely on contractors when entering new markets.
Contractors offer speed, flexibility, and less commitment, making them an attractive option for early-stage expansion into a country. However, what often begins as a small freelance engagement can gradually evolve into a more long-term working relationship, with fixed hours, defined responsibilities, and ongoing direction from the company.
This can lead to a contractor unintentionally crossing the line into employee status, exposing the risk of contractor misclassification.
The consequences are substantial financial penalties, tax liabilities, and obligations to pay backdated benefits.
For example, a Spanish delivery app called Glovo was fined €79 million in 2022 and a further €57 million in 2023 for misclassifying couriers as self-employed instead of workers.
For PE-backed companies expanding across borders, even a few misclassified roles can have costly regulatory and reputational impacts. EOR solutions mitigate this risk. Firstly, by acting as the legal employer, an EOR ensures that each worker is hired under the correct legal status, based on local labor laws. Secondly, the EOR’s local HR and legal expertise ensures ‘scope creep’ in contractor roles is identified early and proactively addressed before it becomes a liability.
Choosing the right EOR partner
Faster market entry, reduced overhead, and lower risk are attractive advantages driving private equity firms to EOR models. But not all providers offer the same level of service and value.
At one end of the spectrum, platform-based EOR providers focus on automating onboarding and payroll. These solutions are fast and sufficient for basic compliance but lack the human expertise needed to navigate complex regulatory environments.
At the other end of the scale, TopSource offers a human-centered service combining modern technology with deep, in-country HR and legal expertise.
Beyond EOR provision, we also act as a strategic globalization partner, helping portfolio companies make smarter hiring decisions, avoid misclassification risks, and transition seamlessly from contractor to EOR to full legal entity when the time is right.
For PE firms managing multiple cross-border expansion efforts, this advisory-led approach reduces risk, protects investment value, and ensures every hire aligns with the portfolio company’s growth stage and long-term strategy.
For more information on how TopSource helps PE-backed companies accelerate global hiring, schedule a call with our team.
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Cat Edwards leads the Entity Solutions Team, guiding clients through every stage of their global expansion journey—from initial incorporation to day-to-day entity management, including compliance and company secretarial responsibilities. She’s passionate about building strong client relationships, simplifying complex regulations, and supporting both her clients and her team as they grow businesses internationally.