Direct Hiring vs. Employer of Record

What is the difference between direct hiring and using an Employer of Record? Direct hiring means a company establishes its own legal entity in a country and employs workers directly through that entity, while an Employer of Record (EOR) is a third-party organization that serves as the legal employer on behalf of the client company, handling all employment responsibilities while the client manages day-to-day work.

This choice represents a fundamental decision for companies expanding internationally, particularly across the diverse markets of the Asia-Pacific region where AYP Group operates.

Direct hiring: Overview

What it involves:

• Establishing a legal entity (subsidiary, branch, or representative office) in the target country
• Registering with local tax, labor, and regulatory authorities
• Setting up payroll, benefits administration, and HR systems
• Directly employing workers under the company's own legal entity
• Assuming full legal responsibility as the employer

Advantages of direct hiring:

• Complete control over employment terms, policies, and practices
• Direct employer branding and company culture integration
• Long-term cost efficiency for large, permanent workforces
• Simplified intellectual property and confidentiality arrangements
• Direct management of employee performance and development

Disadvantages of direct hiring:

• Significant upfront costs (entity establishment, legal fees, registration)
• Time-consuming setup process (3-6 months or longer)
• Ongoing compliance burden and legal risks
• Administrative complexity managing multiple entities
• Commitment required even for small or experimental market entry
• Need for local legal, tax, and HR expertise

Employer of Record: Overview

What it involves:

• Partnering with an EOR provider like AYP that has existing legal entities
• The EOR becomes the legal employer handling all employment obligations
• The client company manages daily work activities and responsibilities
• Workers are employed quickly without entity establishment
• Employment compliance is handled by the EOR

Advantages of using an EOR:

• Rapid deployment (hire within days instead of months)
• No entity establishment costs or administrative burden
• Compliance expertise across multiple APAC countries
• Flexibility to scale up or down without long-term commitments
• Access to local benefits packages and salary benchmarking
• Reduced legal and regulatory risks
• Single-point management for multi-country operations

Disadvantages of using an EOR:

• Ongoing service fees (typically percentage of payroll or per-employee)
• Less direct control over certain HR policies and processes
• Employees are technically employed by the EOR, not the client company
• May be cost-prohibitive for very large teams long-term
• Dependency on the EOR provider's capabilities and service quality

When to choose direct hiring Direct hiring makes sense when:

• Planning significant, long-term presence in the market (50+ employees)
• Need complete control over employment terms and company culture
• Have resources and expertise to manage local compliance
• Entity establishment costs can be amortized over large workforce
• Local entity required for business licensing or client requirements
• Intellectual property or regulatory considerations require direct employment

When to choose an Employer of Record An EOR solution is ideal when:

• Testing new markets with small teams (1-20 employees initially)
• Need to hire quickly without months of entity setup
• Expanding across multiple APAC countries simultaneously
• Want to avoid compliance risks in unfamiliar jurisdictions
• Require flexibility to scale or exit markets without entity complications
• Lack local HR, legal, and payroll expertise
• Hiring remote employees in countries without business presence

Hybrid approaches Many companies use a hybrid strategy:

• Use EOR for initial market entry and testing
• Transition to direct hiring once reaching a certain employee threshold
• Maintain direct entities in major markets while using EOR for smaller locations
• Use EOR for specialized roles or remote workers while directly hiring core teams

Cost comparison considerations Direct hiring costs:

• Entity establishment: $5,000-50,000+ depending on country
• Legal and accounting setup: $10,000-30,000+
• Ongoing compliance and administration: $2,000-10,000+ monthly
• Payroll and HR systems: $500-5,000+ monthly
• Local HR staff or consultants: $3,000-10,000+ monthly

EOR costs:

• No setup fees or minimal onboarding costs
• Service fees: typically 8-15% of payroll or $200-800 per employee monthly
• Predictable monthly expenses with transparent pricing
• All compliance, payroll, and HR services included

Break-even analysis: Generally, direct hiring becomes more cost-effective when employing 20-50+ people in a single country. Below this threshold, EOR solutions typically offer better value and significantly less risk.

EOR to direct entity transition Companies often start with EOR and transition to direct hiring:

1. Begin with EOR to validate market and hire initial team
2. Reach critical mass (often 20-50 employees)
3. Assess long-term commitment and business case
4. Establish legal entity while maintaining EOR relationship
5. Gradually transfer employees from EOR to direct entity
6. Maintain EOR for flexibility or secondary locations

AYP Group's EOR advantage in APAC AYP provides particular value for companies expanding across Asia-Pacific:

• Existing entities in 14+ APAC countries eliminating setup time
• Deep local expertise in diverse regulatory environments
• Centralized platform managing multi-country operations
• Regional salary benchmarking and benefits knowledge
• Established relationships with local vendors and service providers
• Cultural understanding and language capabilities across the region