Employer of Record Companies vs. Legal Entity Setup: Which Is Best?

More companies are turning to employer of record (EOR) providers in a big to scale faster and benefit from cost-efficient international talent. New research has found that 41% of companies use EORs, while 49% are planning to start using them. 

While reasons vary, 65% report relying on EOR service providers to enhance compliance and reduce risks. Meanwhile, 63% use EORs, like Tawzef, for cost savings, mainly to mitigate the cost of setting up and maintaining a local entity. 

Lastly, 51% of companies turn to employers of record to benefit from global, specialized talent.

When considering a global expansion, decision makers and leaders must determine the best framework to support their expansion.

Is it a simple desire to hire global talents to support current business operations? Or do they need to set up a legal business entity?

The decision carries many factors. It’s why many will often turn to employers of record, until needs and plans become clearer. 

Read on to learn more about the differences between using an employer of record and setting up a legal entity, and the pros and cons of each. 

Employer of Record Regional Statistics and Data 

The global EOR service market is estimated to reach $25 billion by 2034, increasing at a compound annual growth rate (CAGR) of 9.5%.

Here’s a breakdown by region and EOR market share:

• North America is the top region with a 45% share of global revenue. Its strength is fueled by a mature HR tech landscape and remote work. EORs here focus on managing complex payroll remittances and social contributions.
• Europe accounts for about 30% of the global EOR market share. Demand is high due to varied labor regulations across EU states. EORs ensure compliance with strict employment and tax regulations.
• Asia-Pacific (APAC) is the fastest-growing region, projected for a 10% CAGR through 2034. This growth is due to rapid hiring activity across India, China, and Southeast Asia. EORs help manage visa sponsorships and gratuity rules. Dubai and Abu Dhabi in the UAE are well-known for using EOR providers as they help companies ensure compliance, especially with free-zone employment regulations.
• EORs for Latin America are expected to grow at 12% annually. This is driven by nearshoring trends and the rising demand for tech and service workers.
• Although the Middle East & Africa (MEA) region is considered a smaller market, it offers strong long-term growth backed by evolving economies and a tech-savvy younger population. There are many employer of record companies in Egypt, including Tawzef.

What Is the Role of Employer of Record Companies in Global Hiring? 

An employer of record is a specialized third-party organization that assumes legal responsibility for employing staff on another company’s behalf in a foreign country.

The EOR provider manages all statutory duties, including complex local payroll and the calculation and remittance of mandatory taxes and social contributions. They also offer comprehensive compensation and benefits packages based on the client’s needs and ensure adherence to local labor laws.

When companies consider expanding to new markets or hiring teams from other geographies, they need to decide if they will set up a new entity or rely on an EOR provider.

The EOR provides the necessary local legal infrastructure, allowing the client company to operate while retaining full control over employees’ and teams’  day-to-day duties and performance management. 

The critical problem employer of record companies solve is eliminating the need for the client to establish a costly and time-consuming foreign legal entity, like a subsidiary or branch, before making a compliant hire. 

This ensures rapid, low-risk, low-cost, and flexible market entry.

Employer of Record vs Entity Setup: Analyzing the Two Global Strategies 

When companies want to scale, they need to consider whether to establish an entity, that is, do everything themselves. Or turn to EOR providers.

The EOR service model offers speed, compliance, and minimized risk. Whereas, establishing a legal entity is an investment model prioritizing permanence, direct control, and maximum brand presence.

There are several differences to consider, and understanding each is key to a successful expansion plan.
 

EOR vs Entity Setup: When to Choose Your Strategy 

The decision hinges on your business intent. 

If your plan is to hire a few people but not establish an entity, an EOR is a faster and more scalable option. Some companies may also choose to work with an employer of record until they decide to make the capital investment themselves, a few years later.

Choose an EOR for market testing, hiring a small team, short-term projects, or in high-risk, complex regulatory jurisdictions.

On the other hand, entity setup is necessary for a long-term commitment, establishing proprietary R&D centers (due to IP requirements), or when a local brand presence is a requirement for customer trust and operations. 

Meet Tawzef, Your Go-To Employer of Record in Egypt 

If you’re looking for an employer of record in Egypt, then Tawzef for Recruitment and HR Consultancy is your go-to. 

Established in 2007, Tawzef has experience in almost every industry.

Offering a fit-for-purpose employer of record solution, Tawzef helps you navigate the complexities of the Egyptian labor market, hire high-quality, specialized local talent, and ensure smooth business operations.

In addition, we help you reduce the risks of market entry and enjoy fewer administrative burdens.

Working with Tawzef means you enjoy:

• Commitment to compliance: Tawzef maintains deep, in-house expertise in local Egyptian labor and tax laws, ensuring your company faces zero risk of misclassification or non-compliance.
• Wide industry expertise: Over the years, we have worked with companies spanning industries such as telecommunications, oil and gas, renewable energy, banking and finance, software and IT, marketing, construction, manufacturing, and everything in between. We work with small and medium-sized businesses, startups, and banks.
• Variety of EOR services: Tawzef offers a full spectrum of EOR services, including but not limited to benefits administration, visa and immigration support, salary surveys and designing pay structures, payroll management, call center outsourcing services, and others.
• Localized human support: Tawzef ensures a positive experience by providing localized human HR support. They act as your reliable on-the-ground resource for handling local inquiries, benefits enrollment, and any employee-related issues.
• Constant communication: Our clients enjoy the continuous feedback and communication we offer. Your dedicated account manager keeps you in the loop as needed, ensuring quick, efficient resolution across time zones.
• Flexible fit-for-purpose solutions: Understanding that business needs change, Tawzef supports strategic exits and pivots. Our contracts are structured for maximum client flexibility, ensuring the EOR solution adapts to your team’s unique needs.
   

Wrapping It Up 

The choice between partnering with an employer of record and setting up a legal entity is a strategic decision for any company pursuing global expansion.

Both models offer distinct advantages and serve a valuable purpose, but the optimal path depends on your organization’s timeline, budget, and long-term strategic goals.

While entity setup is a commitment for permanence and maximum control, the EOR model is a powerful tool for accelerating the expansion. It ensures fast, compliant, and low-risk market entry, giving you access to international talent without the significant upfront investment and administrative burden of a local entity.

To understand how the EOR model can benefit your specific business needs and ensure compliant hiring in markets like Egypt, get in touch with Tawzef today.