When does a local entity cost less than an employer of record?

Summary

A local entity costs less on recurring administration once its fixed annual cost is outweighed by the saving per employee compared with the EOR fee. There is no universal break-even headcount: use the country-specific entity quote, the offered EOR fee and a consistent period, then add setup, closure and transition costs.

The shape of each cost

For the worked example, take a monthly EOR service fee of $599. Deel publishes a $599 EOR headline, while Atlas and G-P publish starting prices at that amount; a headline is not a quote for every country. At the illustrative $599 fee, one employee costs $7,188 a year in service fees. Ten employees cost $71,880.

An entity has costs that do not multiply directly by headcount, such as a registered address and statutory accounts. Incorporation is a separate setup expense, and an audit belongs in the quote where required. Payroll processing and HR administration can add a per-employee cost; use the quoted amount rather than assume a discount. For the recurring comparison, separate the fixed annual cost from the annual cost per employee.

Two lines with different slopes. They cross at a headcount, and the formula above is where. Three numbers decide it: the fixed annual cost of the entity, the recurring annual cost per employee once it exists, and the EOR fee per employee per month. Only the third is on this site.

If the denominator is zero or negative, there is no break-even at those inputs: the entity costs at least as much per head as the provider does, and adding people never closes the gap. That is the case worth spotting early, because it means the fixed cost is not the thing to argue about.

In a hypothetical example, not an observed entity quote: an entity costing $40,000 a year fixed and $1,200 a year per employee, against a $599 monthly fee, breaks even at 40,000 / (7,188 - 1,200) = 40,000 / 5,988 = 6.7, so the entity is strictly cheaper from seven employees under these inputs. Each employee saves $5,988 a year once the entity exists, and the fixed cost has to be recovered out of that. Change the fixed cost to $20,000 and the entity becomes cheaper from four employees. Change the fee to $199 and the denominator becomes 1,188, which puts break-even at 34 people. Replace all three inputs with comparable quotes; the crossover in the calculator lets you enter them.

Where the crossover usually sits

The formula gives a recurring annual crossover. It does not show how quickly the one-time cost of opening an entity is recovered. For a short or uncertain hiring period, compare the entire expected term, including setup, employee transfer and eventual closure.

A higher EOR fee lowers the recurring crossover if the entity quote stays the same. A higher fixed entity cost raises it. More employees help recover a fixed cost only while the per-employee entity cost remains below twelve months of the EOR fee. At an exact integer crossover, the recurring totals tie; the next employee makes the entity strictly cheaper.

The thing both options share

Both routes must account for applicable employment costs: salary, employer contributions, required extra pay and benefits. Ask the EOR to separate the service fee from those amounts. Do not assume every charge is passed through at cost or that every employer has identical rates, exemptions and benefits.

Compare each route for the same employee, pay basis and coverage. A provider fee quoted in dollars and payroll costs quoted in local currency need an explicit exchange-rate assumption before being added together.

Where the EOR fee actually hurts

For a flat $599 monthly fee, the annual charge is about 6% of a $120,000 salary and about 24% of a $30,000 salary. A flat service fee takes a larger share of a lower salary. The employee's statutory contributions are a separate calculation, so compare the cash totals in one currency.

Compare the published prices and their conditions, then replace the headline with the fee in your own quote. Differences in commitment, deposits and add-ons can change the comparison.

Before you decide

Run the country at the salary you intend to pay, with and without a provider fee, in the calculator. Then get an entity quote for the same country from a local firm, put its two numbers into the crossover on the same page, and compare totals across a realistic headcount schedule and the expected duration of employment. Confirm the calculator inputs against the written quotes.

The obligations behind the quote

An entity brings operational obligations as well as a fixed cost. Include the work needed to meet them in the comparison.

Statutory filings, payroll and employment administration need a named owner when you operate an entity. An EOR provides a legal employer and administrative service, but its contract still determines which costs, decisions and liabilities fall to the client.

Size thresholds can affect charges. In the United Kingdom, employers and connected companies with a combined annual pay bill above GBP 3 million are liable for the Apprenticeship Levy. Its rate is 0.5%, with a GBP 15,000 allowance under the applicable allocation rules. An EOR quote needs to explain whether and how such costs are allocated. HMRC, 2026–27

Termination obligations remain relevant with either route. For a newly hired Spanish employee, Article 56's unfair-dismissal compensation is 33 days' salary per year of service, capped at 24 monthly payments, where compensation is chosen instead of reinstatement. Brazil's FGTS law requires an additional 40% of the relevant deposits on dismissal without just cause. An EOR does not automatically absorb these costs; obtain its contractual allocation and exit process. Spain, Article 56, Brazil, Article 18

What actually decides it in practice

• What headcount do you expect in that one country in eighteen months, and is it above or below the break-even above? Get the entity quote first; the answer is arithmetic once you have it, and guesswork until then. The calculator does that arithmetic.
• If you also need an entity for local business operations, compare the incremental cost of hiring through it. Do not charge the hiring decision with fixed overhead already required for those operations.
• Then there is the compliance work. An entity needs someone responsible for local payroll, filings and employment administration. Identify the work covered by the provider contract and what your team must still handle.
• How stable is the headcount? Opening and closing an entity around a team that shrinks is expensive in both directions.

The number to put next to both

Whichever route you take, account for the applicable employer costs separately from service and administration fees. Run the country at your intended salary on the country pages or in the calculator, and treat the entity-versus-provider question as a separate line on top of it rather than as the whole decision. What the number leaves out lists the items neither route removes.

When this is not a live decision

If you already have an entity in the country, use its incremental hiring and administration costs instead of charging the same fixed overhead again. If you are engaging a genuine independent contractor, this employee-cost crossover is not the relevant calculation; verify the classification. For a country outside the site's country coverage, the formula still works with your own quotes, but its payroll costs need separate research.

Sources

Current official pricing and statutory sources are linked beside the relevant claims. Last verified October 12, 2026: the cited EOR headline prices, UK levy conditions, Spanish unfair-dismissal rule and Brazilian FGTS dismissal rule. Entity costs in the worked example are hypothetical, and no market-price or service-quality claim is made.

Related on this site

• Which EOR providers publish a price, and what does it include?
• Contractor or employee: which costs should you compare before hiring?

What to confirm before you accept a quote

A quoted monthly fee is rarely the whole quote. Ask the provider to confirm each of these before you sign:

• What the fee covers. Whether onboarding, offboarding and one-off filings sit inside the monthly fee or are billed separately.
• Deposit. Whether the provider requires a security deposit or advance payroll funding, and how much.
• Foreign exchange. Which currency you are billed in, who absorbs the exchange-rate movement between billing and payout, and whether a spread is added on top of the market rate.
• Off-cycle payroll. Whether a bonus run, correction or termination payment outside the regular payroll cycle carries an extra fee.
• Cancellation terms. The notice period and any fee for ending the contract, and what happens to an employee already hired under it.