EOR vs Open an Entity? A Cost Breakdown for Global Employers

Businesses often feel confused when choosing between an EOR vs. opening an entity for global growth. The choice depends on company requirements and cost-effectiveness.

The EOR model allows companies to establish a presence in a new country without dealing with labor laws or legal complexities. Setting up a legal entity means creating a subsidiary or branch. This process is more complex and costly, but it gives the company full control.

For businesses wanting to grow in India, knowing the costs of both models is key. This is especially true for startups with tight budgets.

This blog will look at the costs of EOR and setting up a legal entity. It will help you find the most cost-effective way to expand.

Cost of Employer of Record 

Employer of record is a relatively less expensive model with an initial setup cost, which is one of the biggest advantages.

The cost of hiring remote employees in India with an EOR partner is $13,346.34. This is the sum after combining the service charge and the average typical salaries of the 6-member team.

If you plan to establish a footprint outside your country, taking assistance from a global EOR partner would be advantageous.

A multi-country EOR does not focus on a single nation; it provides services across multiple countries. A multi-country EOR typically has greater service fees than a local EOR. Global EORs typically charge a flat monthly fee of $600–800 per person.

It can be costly to work with a global EOR service provider for multiple teams across multiple nations. Rather, using a local EOR independently for each nation significantly reduces costs.

Cost of Legal Entity

In India, to set up a subsidiary, you will need to pay the government fees. You need to complete name reservation, incorporation filing, DIN application, PAN/TAN filing, etc. The cost of those activities should generally be INR 7,000-20,000.

This also includes professional fees, paid to the respective lawyer and an accountant. You have to hire a lawyer and an accountant to handle your documentation, compliance, and filing processes.

Their fees average between INR 10,000 and 50,000. It is also dependent on the number and complexity of the incorporation process. 

The notarization fee and the stamp duty on the articles of association and the memorandum are examples of additional miscellaneous head expenses. It involves the cost of obtaining a single registered office address. The prices under the miscellaneous titles range from INR 5,000 to INR 10,000.

The final cost of setting up an organization in India would be 15,000 to 50,000 rupees at most. Once again, it depends on the needs of the business.

Comparison Between the Cost of EOR vs. Opening an Entity

We have understood the cost of EOR and opening an entity individually. It becomes crucial to understand the cost comparison between EOR and opening an entity while deciding on global expansion.

Both models offer better solutions, but there is a significant difference in cost and operational structure.

Let’s compare both models for expanding in India.

Cost Element	EOR	Entity Setup
Initial Cost Lower:	Onboarding fees, legal compliance checks	Incorporation, legal, consulting fees, and office setup
Running Cost	Consolidated monthly fees, payroll management, and employee benefits	Payroll, HR, compliance, infrastructure, accounting, tax filings
Closing Cost	Minimal: Exit fees, final tax clearances	High: Legal dissolution, employee terminations, asset liquidation
Cost of your time	No involvement in compliance and operations, so the time involved is only in work execution and allocation.	Apart from work execution, management has to get involved in compliance, operations, and logistics.

Initial Cost: 

Compared to opening an entity, EOR has a lower initial cost. This includes incorporation fees, office setup, and legal procedures.

Running Cost:

EOR provides a simple payment structure with a fixed monthly fee. Cost-effective, EOR is the best option for small- to medium-sized operations. With a legal entity, it’s almost the opposite of EOR. It offers a broader range of recurring expenses, including payroll, compliance, HR, and infrastructure maintenance.

Closing Cost: 

Regarding flexibility, EOR is the best option, with minimal closing costs and a simplified parallel exit process. It’s a big struggle and an expensive process when shutting down an entity.

Cost of your time: 

Time is a key distinction between EOR vs. opening an entity. Costs associated with time can significantly impact your total investment and time-to-market.

• • EOR: Employee onboarding through an EOR can be completed quickly, taking one or two weeks on average, enabling a swift launch into new markets. The EOR handles the legal and administrative responsibilities, greatly lessening the time commitment on the parent company.
  • Opening an Entity: Establishing an Entity depends on the industry and the intricacy of the company; it will take three to twelve months. The time and resources required for the entire process are increased by ongoing legal consultations, compliance procedures, and delays.

The comparison is more about scalability and long-term financial impact. At the same time, both terms are compared in terms of control and flexibility. With EOR, the business gains a simplified cost structure, and upon opening an entity, it enters the market. 

The flexibility of EOR is attractive to businesses planning to hire a small team without an administrative burden. Businesses that want full control over their operations are automatically pushed to form a subsidiary.

Conclusion

When choosing between the EOR model and opening an entity for business expansion in India, cost, control, and flexibility are the main concerns.

The EOR model is the most cost-effective and ideal option for small and medium-scale businesses. It can efficiently manage the team and streamline the hiring process without establishing an entity in the respective country. This is the best option for companies exploring new markets.

On the other hand, for larger organizations seeking full control over their operations, establishing an entity would be a better and long-term solution.

Despite having higher initial, running, and closing costs, it turns out to be a better way of expansion in India. It becomes a complex decision when permanence and higher financial commitments are involved.

The blog concludes that both options are best, and that the right choice depends on your organization’s aims and objectives.

For many, EOR is a preferred model due to its flexibility and low risk. While companies that prefer overall control and scalability for the long term would prefer an entity, for most organizations, the entity is not the best-suited option, as it adds significant compliance and monetary burdens. Thus, it is quite ideal to opt for an EOR solution if you do not plan to sell in that country.