In recent years, EOR services have gained popularity across various industries. However, businesses must carefully evaluate how these services fit into their plans. An Employer of Record (EOR) assumes responsibility for the legal aspects of employment, including payroll management, benefits administration, and compliance with tax regulations. While legal outsourcing payrolling to an EOR like Deel.com or Remote.com may seem like an attractive option (because they promise to solve your problem, by eliminating the need to setup a local entity), it is important to consider alternative solutions that offer even greater control and cost-effectiveness.
One such alternative is to handle payrolling internally with the assistance of a Payroll Handling Firm, such as eBranch. This approach allows businesses to maintain control over their payroll processes and keep their budget in check. Additionally, foreign companies have the option to register as employers in any EU country without the need to establish a local business. (Not) Surprisingly, this cost-effective solution (known as in-house registration) is not even presented as an option in the comparison tables provided by EORs like Deel.com and Remote.com.
At eBranch, we understand the importance of informing entrepreneurs about the easiest and most efficient way to payroll their first staff member in a new EU market. This blog serves as the first step in providing entrepreneurs with the necessary information to make informed decisions.
You need to see the whole picture of EOR services, including where they fall short, to make smart choices. Many companies miss out on the good things about registering as an employer themselves, like having more control, saving money with bigger teams, and building a stronger brand as an employer. Doing your homework on both EOR and direct registration options helps you make the best choices for growing your business in other countries.
Comparison of Employment Models for Foreign Companies
Aspect | EOR | PEO | Inhouse Registration/Payroll Handling |
Legal Employer | EOR | Client Company | Client Company |
Compliance Responsibility | EOR | Shared | Client Company |
Setup Time | Fast | Moderate | Fast |
Cost for Small Teams | High | Moderate | Low |
Cost for Large Teams | High | Moderate | Low |
Control over HR Processes | Limited | Moderate | Full |
Flexibility | High | Moderate | High |
Scalability | Easy | Moderate | Moderate |
Brand Presence | Limited | Moderate | Strong |
Best For | Quick market entry, testing new markets | Mid-size companies, shared liability | Long-term presence, full control |
Questions Addressed in This Blog
Pros and Cons: How does EOR stack up against setting up as an employer yourself?
Key Decisions: At what point should businesses switch from EOR to registering ?
Legal Hurdles: What tricky legal issues come up with EOR in various countries?
Money Matters: How does the size of your team impact the cost-effectiveness of EOR versus direct registration?
When Should You Think About EOR?
EOR can act as a starting point for businesses to enter new markets without setting up an entity right away. It's handy during the R&D stage letting companies put things into action with less initial risk. But as operations expand, switching to direct registration often becomes more beneficial to reach full market potential and keep total control over operations.
What are the drawbacks of using an EOR?
While EOR services have some perks, it's key to understand their limits to make smart business choices. Here are the main constraints to think about when weighing EOR against in-house employer registration:
Legislative Variations
Many countries don't have clear rules for EOR, which can create problems with following the law. This lack of clear guidelines has an impact on how reliable and effective EOR services are in different places.
Contract Duration Restrictions
Some European countries put strict time limits on EOR agreements. For example, France, Spain, and Portugal allow EOR services for up to 6 months, while Germany and Poland let them go for up to 18 months. To work around these limits, companies often use other options like temp agencies.
Professional Restrictions and Benefits
Jobs that need special licenses such as doctors, lawyers, and notaries can't use EOR services. Also, the benefits offered through EOR might be less flexible than what you'd get if you were hired .
Cost Considerations for Growth
As teams grow bigger, EOR services can cost too much. The price for each employee usually makes it better for large operations to register as employers themselves.
Because of these drawbacks, companies should think hard about whether EOR fits their long-term growth plans. Many growing businesses find that registering gives them more control, saves money, and lets them work more .
In the Netherlands, people see EOR providers (uitzendbureaus) as staffing agencies that hire workers for other companies. This setup works when client companies have the right professional licenses, but it might not be the best choice for long-term growth.
In markets without rules, EOR providers have to hire people full-time and take on all the responsibility. This gets tricky for jobs that need special permits often making the arrangement hard to manage or expensive.
Limited Benefits
EOR setups can limit employee perks and rewards, including:
Company cars
Stock options
Custom benefits
Cost Impact on Growing Teams
EOR services work best when companies first expand offering quick fixes for small teams doing market research. But as operations expand, the per-employee cost structure becomes harder to maintain. Companies need to weigh this turning point based on their unique situation.
Knowing these limits in different countries is key to follow rules and handle both employee and company expectations well.
How Does an Employer of Record Work?
The Employer of Record model originated in the USA in the 1960s, where companies faced challenges when employing people across state lines. These days, many teams are international, and an EOR can help companies hire people from other countries.
When a company uses an EOR, there is a three-sided contract signed by the company, the employee and the EOR:
The company and the employee maintain a direct relationship. The company is responsible for assigning their work tasks, managing performance and anything else that goes along with the work itself.
The EOR is the legal employer of said employee. They handle the administrative and legal responsibilities, including payroll, taxes, benefits, compliance, etc. Global EORs may also handle things like employee visas and taxation issues in the host country.
The employee is responsible for executing their obligations set forth in the job description.
Pros and Cons of an Employer of Record?
As with any business service or relationship, there are benefits and drawbacks to engaging an Employer of Record…
What Are the Benefits of an Employer of Record?
An Employer of Record can offer many benefits. For starters, utilising an EOR can provide a valuable service to businesses who don’t have the time or resources to handle the complicated paperwork and requirements involved in employing people. This is especially relevant for companies who are expanding to different employment regions (e.g. different countries or across state lines in the US).
It’s becoming more and more common for companies to set up operations abroad or hire remote workers who do not need to travel to work. However, this often requires much more than just registering a tax number or filing annual tax returns to be compliant. Using an EOR is an efficient way to quickly expand a business with local staff and comply with local laws, while also providing protections and benefits to employees.
An Employer of Record can be an effective solution to work through compliance obstacles, mitigate the risks of employment in complex jurisdictions, and expand operations efficiently.
For an EOR service provider like Deel.com, you can also benefit from their role taking on the responsibility as a legal employer and ensuring that compliance with local labour laws and provisions of respective countries. The employment relationship is managed in accordance with the law.
What Are the Drawbacks of an Employer of Record?
While an Employer of Record can be a great option, there are drawbacks – and it’s not the right option for every business.
First, working with an EOR may leave those within the business feeling like they have less control. No matter the level of involvement of the EOR, handing over ownership of core administrative processes can feel challenging.
Additionally, handing over these processes will take a large load of work off other teams within the company, especially HR. While this isn’t inherently a bad thing, it can mean many jobs are being outsourced and HR won’t be as heavily involved in the day-to-day operations.
Companies using an EOR may need to rethink the setup of the in-house HR department.
1. Cost impacts of In-House and EOR
Grasping the money side is key when picking between in-house and EOR options.
Direct costs
In-House: Setting up an in-house team needs a big upfront spend on legal entity setup and infrastructure. But this investment brings cost perks and more control in the long run.
EOR: EOR services need less money upfront, but ongoing fees can add up maybe costing more than in-house over time.
Indirect costs
In-House: Extra costs include HR training and local tweaks, but these investments create valuable in-house skills.
EOR: Although providers take care of many indirect expenses, the lack of direct control can restrict company growth potential.
Scalability costs
In-House: Scaling with an in-house model needs careful resource management, but it gives strategic benefits. The first investment in admin infrastructure and compliance systems builds a strong base to grow and control operations .
EOR: EORs offer quick scaling options but might limit long-term strategy flexibility and control over growth choices.
2. Compliance and Risk Management
Managing global compliance has an impact on how companies deal with local labor laws and rules. Here's how each model tackles these issues:
Compliance burden
In-House: To build internal compliance know-how costs money at first, but it creates valuable company knowledge and a stronger market presence. This approach allows direct oversight of regulatory requirements and helps to build lasting company expertise.
EOR: While EORs handle compliance tasks, this handoff can limit internal knowledge growth.
Risk factors
In-House: To manage compliance allows better risk control and quick response to rule changes helping to build stronger local ties.
EOR: Though providers handle compliance risks, this outside reliance may restrict strategic choices.
Data privacy and Security
In-House: Teams within the company have direct control over how they protect data making sure it matches company standards.
EOR: While providers offer services to protect data, companies might find it hard to customize security measures.
3. Level of control and employer branding
Control over how things run and brand identity still matter a lot when hiring . Each model has its own perks.
Employer control
In-House: Running an in-house team gives you full control over how employees work and fit into the culture. This way, you can make sure your brand values and work culture stay consistent. You can also put company policies and practices into action .
EOR: EORs provide task oversight and handle administrative duties. This setup boosts efficiency but lessens direct control of HR tasks.
Employee experience
In-House: Managing the employee journey ensures brand consistency and lets companies create custom engagement programs, though adapting to different regions needs careful thought.
EOR: EORs bring local HR know-how to ensure compliance with regional rules offering effective employee management with less internal supervision.
Employer brand in new markets
In-House: Hiring in a market shows long-term commitment and builds up the brand's reputation in that region.
EOR: EOR partnerships allow quick entry into markets but may restrict direct brand visibility.
Looking at your choices to employ your first staff member abroad
Your pick between in-house and EOR models hinges on what you want to achieve:
Cost: Setting up in-house demands a big upfront investment but gives you control and market presence in the long run. EORs offer costs you can predict and adjust.
Compliance: Managing compliance in-house, while it needs a lot of resources, builds useful know-how within your company. EORs take care of compliance but you have less direct control.
Control and Branding: In-house operations let you have more say in how you manage employees and align with your culture. This works well for businesses that want a strong brand presence. EORs might be efficient, but they can limit how much you can manage things.
Companies with big budgets and clear market plans get the most out of setting up their own offices for long-term success and market control.
Comparison of Employment Models for Foreign Companies with Cost Estimates
EOR | PEO | In-house Registration/Payroll Handling | |
Legal Employer | EOR | Client Company | Client Company |
Compliance Responsibility | EOR | Shared | Client Company |
Setup Time | Fast | Moderate | Slow |
Cost for 6000 EUR/month Salary | 6600 EUR/month | Moderate | 6010 EUR/month |
Cost for Large Teams | High | Moderate | Low |
Control over HR Processes | Limited | Moderate | Full |
Flexibility | High | Moderate | High |
Scalability | Easy | Moderate | Complex |
Brand Presence | Limited | Moderate | Strong |
Best For | Quick market entry, testing new markets | Mid-size companies, shared liability | Long-term presence, full control |
Assumptions:
Employee Salary: 6000 EUR/month
EOR Rate: 600 EUR/month
In-house Registration: 10 EUR/staff member/month for ongoing payrolling (no other charges)
eBranch: Your global payrolling partner
eBranch makes global hiring easy and compliant—you don't need to set up local offices.
Our HR Outsourcing solutions combine cutting-edge software with expert human help to manage your global workforce and well.Why choose us?
Compliance management: Handle local rules with no fuss.
Payroll & benefits handling: Take care of payroll, taxes, and benefits on schedule.
Local expertise: Tap into our deep knowledge of employment laws.
Adaptable options: Grow worldwide with tailored approaches.
Direct service: Hire staff in 15+ countries through our offices—without hidden fees.
No learning curve: We take care of everything—you don't need to learn platforms or train employees.
Employer Tax registration for Foreign Companies
If the business simply needs to employ foreign workers that reside in another jurisdiction a Foreign Employer Tax Registration will be required. It is a common misconception that a company will need to register a branch or subsidiary company in a foreign country before they can hire local workers, but this is not always the case. There are three main factors that will determine which course of action is needed:
Is the overseas employee working remotely (either from home or a rented space)?
Is the overseas employee working in the field at client premises?
Do you need to invoice clients in the jurisdiction that the employee is working in?
Is the employee resident in the country where you want to employ him/her?
Whatever the employment situation there are several aspects to consider when employing foreign workers abroad. Euro Company Formations can find the best solution based on the answers to these questions and the local laws in the jurisdiction that the company is looking to hire overseas employees.
Comparison of Payroll Handling Procedures and Timelines for Foreign Companies
Procedure | EOR | PEO | In-house |
Initial Setup | 1-2 weeks | 2-4 weeks | Immediate |
Employee Onboarding | 1-3 days | 3-5 days | Immediate (employer registration in parelell) |
Payroll Processing | Automated | Semi-automated | Manual or semi-automated |
Tax Calculations | Handled by EOR | Shared responsibility | Company responsibility (supported by eBranch) |
Benefit Administration | Limited options | Customizable | Fully customizable |
Compliance Management | Fully managed by EOR | Shared responsibility | Company responsibility |
Payroll Cycle | Fixed (usually monthly) | Flexible | Fully flexible |
Year-end Reporting | Handled by EOR | Assisted by PEO | Company responsibility (software solution by eBranch) |
Cost Structure | Per employee fee (approx. 500-750 EUR pm!) | % of payroll or fixed fee (Approx. 250 EUR pm) | 10 EUR pm per employee + eBranch memebership |
Scalability | Easy, but costly for large teams | Moderate | Easy, eBranch can handle large teams, but extra HR solutions might be desired |
Note: Timelines and procedures may vary depending on specific countries, company size, and complexity of operations.
Employer Registration
Legally speaking when a company wants to employ foreign workers abroad the company must register with the local (tax) agency in the country before it can legally become an employer.
Otherwise, you may be in breach of employment laws, which could lead to penalties.
In practise however, this scenario is not uncommon, and exposes hardly a risk.
But, many say: Better Safe then Sorry, and thus it's advisable to research the local employer registration requirements before hiring foreign workers. There are certain rules and regulation that apply to Employer tax registration in different territories and extra control must be taken into consideration.
New Hires
An employment contract in the local language may be required as well as employee benefits such as health insurance, disability insurance, pension or other regulations. New employees will need to be registered as well as general information such as the company’ name, Employer Identification Number and address.
If your company has staff working in a foreign tax jurisdiction in a given year or relocating to a different jurisdiction for a period, ensuring compliance with local and international tax laws is crucial. Tax and social security applications for both employees and employers in the home and host country is the major consideration to follow.
How can I apply?
If you are interested in expanding your business overseas and need to employ foreign workers that reside in the new market eBranch would be happy to assist you with an application for Foreign Employer tax registration. We will prepare your application and ensure all required documentation is present before submitting to the Tax Office in the specified jurisdictions.
eBranch’s Foreign Employer Tax Registration Service includes:
Employee Registration at the tax department
Application of registration number (Social Security number)
Additional services depending on chosen jurisdictions (Payroll Handling)
The timeframe for this application varies between 2-3 weeks subject to the Tax office in question, but the payroll handling can already start right away, and your first employee does not have to await the finalisation of the Registration Process as Employer.(Some exceptions in EU countries might apply, such as in case of Posted Workers).
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