EOR vs setting up a subsidiary: Which is better?
At a glance
- An employer of record (EOR) lets you hire abroad in days without owning a local entity; setting up a subsidiary means building your own company in that country.
- An EOR wins on speed, low cost, and compliance for a few hires; a subsidiary wins on control and long-term value at large scale.
- Most companies start with an EOR to test a market, then open a subsidiary once their headcount grows.
Hiring your first employee in another country forces an early decision. The EOR vs setting up a subsidiary choice is really about whether you borrow a ready-made legal employer or build your own. Companies go abroad for good reasons, and Deloitte finds that skilled talent and agility join cost reduction as key drivers. How you hire there, though, changes your speed, cost, and risk.
An employer of record (EOR) is a company that legally employs staff for you in a country where you have no entity. The worker is on the EOR’s books, not yours. Setting up a subsidiary means registering your own local company to employ people directly.
Here is how the two approaches compare.
What is an employer of record?
An EOR already has a legal presence in the country. It hires your chosen worker on paper. It runs local payroll and handles taxes and benefits. Meanwhile, that person works day to day for you.
This lets you hire in a new country within days, with no entity to set up. You get a compliant local employee fast, and you can stop just as easily. The trade-off is an ongoing per-employee fee and slightly less direct control over the employment relationship.
What is setting up a subsidiary?
A subsidiary is your own registered company in the foreign country. You own it, staff it, and run it under local law.
This gives you full control and, at scale, lower per-person cost. But it is slow and demanding. You face incorporation, local banking, and ongoing compliance, including cross-border tax rules and local filings. Standing up a subsidiary can take many months and significant legal and accounting spend before you hire anyone.
Head-to-head comparison
| Factor | Employer of record | Subsidiary |
|---|---|---|
| Speed to hire | Days | Months |
| Upfront cost and effort | Low | High |
| Control over employment | Shared with the EOR | Full |
| Compliance burden | Handled by the EOR | Yours to manage |
| Cost at scale | Per-employee fee adds up | Lower once established |
| Ease of exit | Simple | Complex to wind down |
In short, an EOR trades long-term ownership for speed and simplicity, while a subsidiary trades speed for control and scale.
When an employer of record makes sense
An EOR fits companies that want to hire abroad quickly and keep their options open. If you need a few people in a new country, or you are testing a market, it is the fastest, lowest-risk path.
It also suits firms without the time or budget to build an entity. By borrowing a ready local employer, you tap global talent while someone else carries the compliance load. For most early-stage international hiring, an EOR is the practical starting point for accessing talent in another country.
When a subsidiary makes sense
A subsidiary fits companies with a large, long-term commitment to a country. If you plan to employ dozens or hundreds of people there for years, owning an entity pays off.
It gives you full control over operations, brand, and intellectual property. And it lowers per-person cost once the fixed setup is behind you. For a serious, permanent presence, a subsidiary is usually the right end state, even if it takes real time and money to build.
The common path: start with an EOR
These options are not mutually exclusive, and many companies use both over time. A popular route is to start with an EOR and switch to a subsidiary later.
You hire a few people through an EOR to move fast and learn the market. Then, once your headcount and confidence grow, you set up a subsidiary and transfer those employees across. This staged approach gives you speed early and ownership once the scale justifies it.
Compliance matters either way
Whichever route you pick, local law still applies. Employment rules, taxes, and benefits differ sharply from country to country.
With an EOR, the provider shoulders that burden for you. With a subsidiary, it is yours to manage, so plan for local expertise. Getting compliance wrong is costly in any market, so treat it as a core part of the decision, not an afterthought.
Frequently asked questions
Is an EOR cheaper than a subsidiary?
For a small number of hires, almost always, since you avoid the heavy cost of incorporation and ongoing compliance. As headcount grows, the EOR’s per-employee fees add up. A subsidiary’s lower marginal cost then makes it the cheaper option at scale.
How long does it take to set up a subsidiary?
It varies by country, but it commonly takes several months once you account for registration, banking, tax setup, and legal work. An EOR, by contrast, can have a compliant employee working within days, which is why many companies start there.
Do I control employees hired through an EOR?
You direct their daily work, projects, and priorities, while the EOR handles the legal employment, payroll, and local compliance. The EOR is the employer on paper, but in practice the person works as part of your team.
When should I switch from an EOR to a subsidiary?
A common trigger is reaching a stable headcount, often in the tens of employees. At that point, the subsidiary’s lower per-person cost outweighs its setup burden. Long-term commitment to the market and a need for tighter control also push companies to make the move.
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