Every international company using an Employer of Record reaches the same point eventually. The monthly EOR invoice is growing. Someone in finance asks whether it would be cheaper to just set up a US entity and employ people directly.
And the honest answer is: it depends on your headcount, and there is a specific number where the economics flip.
This guide shows you exactly where that number is, how to calculate it for your specific situation, and what other factors beyond pure cost, should drive the decision. It also tells you what to do when you are close to the line but not quite there yet.
This is one of the most active decisions in the international expansion market right now. Every company that has validated their US market through an EOR hire is asking exactly this question.
The Core Decision: Build vs Buy
The EOR vs entity decision is fundamentally a build-versus-buy choice.
An EOR is the buy option. You purchase employment infrastructure: payroll, compliance, benefits, tax filings, workers’ comp, all bundled into a monthly fee per employee. The cost scales linearly. Every hire adds another fee. The overhead is predictable. The risk is low. The setup time is days.
Your own US entity is the build option. You create the infrastructure yourself: incorporate in Delaware, register for state payroll taxes in each state where you have employees, source and administer benefits, manage payroll, file quarterly and annual returns with federal and state agencies, maintain workers’ comp policies, and administer a 401(k) plan.
The fixed costs are real but they do not scale much with headcount. That is where the economics eventually tip.
As Wisemonk’s 2026 analysis of the EOR vs entity decision confirms: EOR fees scale linearly with headcount: every new hire adds another monthly per-employee fee. Entity fixed costs do not increase as much, so the per-employee cost drops as headcount grows.
The Real Costs: EOR vs Entity
Before you can calculate the breakeven point, you need accurate numbers for both sides of the equation.
EOR Costs
Foothold America charges a flat monthly fee per employee. This is the standard model for quality US EOR providers. It is predictable, scalable, and transparent: you know exactly what you are paying for each employee each month.
The fee covers payroll administration, tax filings, workers’ compensation, HR support, and benefits administration. Health insurance premiums are passed through separately as the actual employer cost. Speak to our team for a specific cost illustration based on your role, state, and salary level.
The flat monthly fee model means your EOR costs scale directly with headcount. Every employee you add costs another monthly fee.
This is the fundamental characteristic that creates the breakeven dynamic: at low headcount, the EOR fee is modest and the entity overhead (which is relatively fixed) is disproportionately high. As headcount grows, the cumulative EOR fees begin to exceed what it would cost to run the employment infrastructure yourself.
US Entity Annual Costs
Entity fixed costs are based on 2025/2026 verified data from SpryTax’s Delaware C-Corp cost breakdown and corroborated by Zenind and Inkle.ai:
One-time setup costs:
- Delaware Certificate of Incorporation: $289
- Legal formation documents (if using an attorney): $500 to $2,500
- State payroll tax registrations (per state): $50 to $200 each
- Total one-time setup: $3,000 to $5,000
Annual fixed entity costs:
- Delaware franchise tax (minimum): $400
- Delaware annual report filing fee: $50
- Registered agent (annual): $100 to $300
- Corporate tax return preparation (Form 1120): $1,500 to $3,000
- Payroll software or service: $200 to $600
- HR/employment counsel retainer or ad hoc: $1,000 to $3,000
- Total annual fixed entity costs: $3,250 to $7,350
Per-employee variable costs under a direct entity:
These are the employment costs you would be managing yourself rather than through an EOR. These are the same costs that an EOR bundles into its fee. They do not disappear when you go entity-direct; they just become your responsibility:
- Employer FICA (7.65% of wages)
- FUTA ($42 per employee)
- SUTA (state-specific, typically $200 to $500 per employee)
- Health insurance employer share (~$7,957 per employee for single coverage per KFF 2025)
- 401(k) match (3% of salary at typical participation)
- Workers’ comp (varies by role and state)
- Dental and vision (~$500 per employee)
These per-employee costs exist under both the EOR model and direct employment. The difference is that under an EOR, they are bundled into the fee and administered by the EOR. Under your own entity, you manage and administer each one separately.
What the entity model removes is the EOR’s service margin, the fee on top of the actual employment costs. That service margin is what you are paying to outsource the complexity.
When the fixed cost of managing that complexity yourself (the $3,250 to $7,350 annual entity overhead) becomes less than what you are paying in EOR service margins, the economics tip toward the entity.
The Breakeven Calculation
Here is the core logic. Your EOR costs a fixed monthly fee per employee. Your entity costs a roughly fixed annual overhead regardless of headcount. At low headcount, the fixed entity overhead spread across one or two employees makes the entity the more expensive option per head.
As headcount grows, that fixed overhead is spread more thinly, and the cumulative EOR fees eventually exceed it.
The annual fixed cost of running a US entity, based on verified 2025/2026 data from SpryTax, runs $3,250 to $7,350 per year. This covers franchise tax, registered agent, annual report filing, corporate tax return preparation, and basic payroll administration. It does not include the internal time cost of managing US HR and compliance, which is a real but variable overhead depending on your team’s capabilities.
The practical conclusion for Foothold America clients: For most UK and European companies without a dedicated US HR function, the EOR model delivers better value at up to around five employees. Above that threshold, the case for entity setup starts to strengthen, and by the time you have six or more US employees with confirmed long-term commitment to the market, the entity economics are usually compelling.
Industry guidance on the headcount threshold varies depending on who you ask and the size of company they serve. Remote’s 2026 analysis puts the breakeven at “often 15-25+ employees”, based on their global platform client base. Remotepass similarly suggests fewer than 20 employees as the threshold where EOR typically makes more sense. These figures reflect larger, growth-stage companies with dedicated HR teams.
For the UK and European companies Foothold America works with, the profile is different. Most are making their first US hires, without a US HR function in place, with headcounts that stay small in the early stages. In our experience, the economics start to shift meaningfully at around six or more US employees.
Below that, the EOR model provides better value once you factor in the full cost of entity setup, ongoing compliance, benefits administration, and the internal time of managing US employment without specialist support.
The Decision Matrix
Cost alone should not drive this decision. Here is how to think through every factor:
When EOR Wins
- Headcount below 8 to 10. The fixed entity overhead is too high relative to EOR service margins at small headcount. Keep the optionality and the managed service.
- Market still being validated. If you are not certain the US opportunity justifies long-term commitment, an EOR preserves your ability to exit cleanly. As we cover in our soft landing strategy guide, the EOR is the core tool for market validation before entity commitment.
- No US HR infrastructure. Running a US entity without someone who understands US employment law, US benefits administration, and US payroll compliance is a risk most international companies underestimate. If you do not have that capability in-house, the EOR is not just cheaper; it is safer.
- Speed matters. An EOR gets a hire operational in three to five days. An entity takes two to four months to set up properly. If you need to move fast on a specific hire, the EOR wins regardless of headcount.
- Pre-entity fundraising stage. If you are using an EOR to build US market presence before a funding round, maintaining the EOR keeps your corporate structure simple and your options open on the entity question.
When Your Own Entity Wins
- Headcount above 8 to 12 and growing. The fixed entity costs are now being spread across enough employees that the per-employee cost of entity management drops below the EOR service margin.
- Long-term US commitment is clear. You are building a permanent US operation, not testing a market. The entity gives you the infrastructure for that: direct banking, equity compensation for US employees, enterprise-grade contracts, and the ability to win larger US customers who require an American legal counterparty.
- Equity compensation is required. You need to issue stock options to your US employees. This requires a US entity with a compliant equity plan. An EOR cannot provide this. If your US hires are expecting equity, the entity decision is made.
- US enterprise sales. Large US enterprise customers frequently require a US legal entity as the contracting party. If your sales pipeline includes Fortune 500 or US public sector contracts, the entity question becomes a commercial requirement, not just a cost question.
- Fundraising from US investors. As we cover in our guide on whether you need a US entity to raise from US investors, institutional US VCs at Series A and beyond typically require a Delaware C Corporation. If US fundraising is on your roadmap, plan the entity setup accordingly.
- ACA compliance threshold. At 50 full-time equivalent US employees, the Affordable Care Act employer mandate requires you to offer qualifying health coverage or face significant penalties. While this obligation can technically be met through an EOR, companies at this scale almost always have their own entity in place by then.
The Decision by Headcount: A Clear Framework
Rather than a precise breakeven table built on generalised fee assumptions that may not reflect your specific situation, here is the framework that Foothold America uses when advising clients on this decision.
US headcount | Likely right model | Why |
1 to 3 employees | EOR | Entity overhead is disproportionate at this headcount. The market is likely still being validated. EOR gives speed, compliance, and the flexibility to exit cleanly if needed. |
4 to 5 employees | EOR, with entity planning underway | EOR is still typically right. Start planning the entity setup in parallel. Talk to a US attorney and factor the transition into your next 12 months. |
6 to 7 employees | Entity setup likely makes sense | At this headcount, cumulative EOR fees are material. Entity fixed costs are now being spread across enough employees to be cost-effective. This is the point to act, not to wait. |
8 or more employees | Own entity | EOR fees at this headcount almost always exceed the annual cost of running your own US employment infrastructure, even factoring in HR oversight. |
Two important caveats. First, the right threshold depends on your specific EOR fee, the states you operate in, and whether you have any US HR capability in-house.
Second, headcount is not the only trigger. Equity compensation requirements, US investor requirements, and large enterprise customer contracts can all force the entity decision earlier than headcount alone would suggest.
At Foothold America, we tell clients the truth about this. We make our living on EOR and PEO+ services, but we also offer entity setup. We have no incentive to keep you on EOR longer than makes sense for your business. When the entity economics are right for you, we will tell you, and we will help you make the transition cleanly.
The Transition: Moving from EOR to Your Own Entity
When you do make the switch, the transition needs to be managed carefully to avoid disruption to your employees.
Key steps in the EOR to entity transition:
- Incorporate your US entity (Delaware C Corp is the standard for internationally-backed companies)
- Obtain your federal EIN from the IRS
- Register for state payroll taxes in each state where your employees work
- Source and set up your health insurance plan (or transition employees to the entity’s plan)
- Set up your 401(k) plan and ERISA compliance
- Source workers’ compensation coverage in each relevant state
- Transfer employment contracts from the EOR to your entity
- Notify employees and manage any benefits enrollment transition
- Close the EOR relationship cleanly
The transition typically takes six to eight weeks when properly planned. Employees should experience no break in pay or benefits during the transition. A well-run EOR will support the process actively rather than create obstacles.
Foothold America manages the full transition from EOR to entity for our clients. We also offer PEO+ as the intermediate model: your own entity as the primary employer, with Foothold America providing the HR infrastructure, benefits administration, and compliance oversight that keeps your US employment running correctly as your team grows.
Our guides to EOR implementation timeline and transitioning from EOR to PEO cover the process in detail.
Where Foothold America Fits
Foothold America is US expansion specialists, not a global platform covering every country. We focus exclusively on helping UK and European companies build US operations, and that means we understand both sides of the EOR vs entity decision in specific, practical terms.
We offer EOR for the early stage. We offer entity setup when you are ready. We offer PEO+ once you have your entity and need the HR infrastructure to run it properly. And we stay with you across the transition, so you are never starting over with a new provider at each stage.
If you are at the point where you are running the EOR vs entity numbers, talk to our team. We will give you an honest assessment of where your breakeven is, what the transition looks like for your specific headcount and states, and what makes sense for your timeline.
Speak to our US expansion team. Real people, real expertise, and a clear view of the numbers.
Frequently Asked Questions: EOR vs Your Own Entity
Get answers to all your questions and take the first step towards a US business expansion.
For the UK and European companies Foothold America works with, the economics typically shift at around six or more US employees. Below that, EOR provides better value once entity setup, ongoing compliance, and HR management costs are factored in. Equity requirements, investor expectations, or enterprise contracts can trigger the decision earlier.
Based on 2025/2026 data: Delaware franchise tax ($400 minimum), annual report fee ($50), registered agent ($100 to $300), corporate tax return preparation ($1,500 to $3,000), and payroll administration ($200 to $600). Total annual fixed entity cost runs $3,250 to $7,350, before the cost of HR management.
Yes, but it is unusual and adds complexity. Most companies use EOR before they have an entity, then transition employees to direct employment. Running both simultaneously is a transitional state, typically used when adding employees in new states where your entity is not yet registered.
Yes. Each state requires separate payroll tax registration, workers' comp coverage, and compliance filings. California and New York are particularly complex to administer directly. Multi-state hiring under your own entity adds overhead that is not present under an EOR, which handles each state's requirements within its service.
They transfer to direct employment under your new entity. This means new employment contracts, a benefits enrollment transition to your entity's plans, and a payroll handover. A well-managed transition takes six to eight weeks with no break in pay or benefits. Foothold America manages this process for our clients.
At 50 full-time equivalent US employees, the ACA employer mandate requires qualifying health coverage. In practice, most companies at that scale have their own entity long before that threshold. It is a confirmation that you should have acted earlier, not the initial trigger.
Moving to direct employment under your own entity means you take on full employer responsibilities. Moving to PEO+ means your entity is the primary employer but Foothold America provides HR infrastructure, group health plans, and compliance oversight. PEO+ suits companies that want their own entity but are not ready to manage US employment fully independently.
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