How To Transfer Employees From EOR To Direct Employment
Your CFO just flagged that EOR spend in Germany has quietly become a six-figure line item. Your VP of People is fielding questions from the board about "employment model strategy" and realising that nobody actually has one. Meanwhile, your 12 employees in Munich are asking why their benefits don't match what colleagues in London receive.
Sound familiar? You're not aloneSound familiar? You're not alone—small and mid-sized enterprises represent nearly 58% of EOR service demand globally. For mid-market companies scaling across borders, the question of how to transfer employees from EOR to direct employment isn't just operational housekeeping. It's a strategic inflection point that touches compliance, cost, culture, and control.
An EOR-to-direct-employment transfer is an operational transition in which a worker moves from employment with the EOR to employment with the client's entity, typically implemented as an EOR termination and a new employment contract with aligned effective dates to avoid pay and benefits gaps. Get it right, and you gain flexibility, cost efficiency, and deeper employee relationships. Get it wrong, and you're looking at compliance exposure, payroll chaos, and a very uncomfortable conversation with your legal team.—notable given that 65% of organizations initially choose EORs specifically to reduce regulatory and compliance risks.
This guide walks you through when to make the move, how to execute it safely, and what most generic resources miss entirely.
When To Switch From EOR To Direct Employment
A practical sequencing rule used by many mid-market HR and Finance teams is to prioritise EOR exits in countries where the company has reached 10 or more EOR employees, because fixed entity and payroll overheads start to amortise meaningfully at that level, according to Teamed's mid-market expansion methodology.
But headcount alone doesn't tell the whole story. The decision to switch from EOR to direct employment should be driven by a combination of signals, not a single threshold.
Key triggers worth watching:
Your EOR invoice has grown from a rounding error to a material expense, and the fees feel increasingly opaque. You're starting to see service issues, whether that's payroll errors, slow response times, or inflexible benefits that frustrate employees. The market has shifted from "exploratory" to "strategic," and you need local leadership, customer-facing presence, or regulatory credibility that an EOR arrangement can't provide.
One VP of People put it simply: "We realised our EOR setup had become our default strategy, not a temporary bridge."
Before committing, build two scenarios per country: stay on EOR versus move to entity and direct employment. Weigh the financials, but also consider control, flexibility, and risk. A partner like Teamed can guide this analysis with neutrality that a single EOR vendor cannot provide.
Cost Comparison Of EOR Versus Direct Employment For Companies Over 200 Employees
Direct employment differs from EOR employment in auditability because the client company becomes directly responsible for payroll filings, statutory payments, and employment records, rather than relying on an EOR's controls and reports.
When you're running 15 people through an EOR in a single country, the per-employee service fee starts to look different than it did with three. But the cost comparison isn't as simple as "EOR fee versus payroll provider fee."—significant when 63% of organizations cite lowering the financial cost of establishing and maintaining local entities as a primary reason for using EOR. But the cost comparison isn't as simple as "EOR fee versus payroll provider fee."
What EOR costs typically include: service fees covering payroll administration, local employer obligations, bundled benefits (often with limited customisation), and compliance administration. What they often hide: change request fees, bespoke benefits exceptions, and SLA-related charges that only surface when something goes wrong.
What direct employment costs include: external costs like local payroll providers, legal and tax advice, insurances, and statutory benefits administration. Internal costs like HR and Finance time for payroll approvals, compliance calendars, and vendor oversight. Plus setup and maintenance for entity registrations, bank accounts, and authority filings.
The most useful question for your board isn't "what's cheaper today?" It's "which model gives us better control over the next few years?"
In highly regulated sectors like financial services, healthcare, and defence, audit readiness and governance often outweigh marginal cost differences. Teamed can build side-by-side cost models by market and time horizon so CFOs aren't relying solely on vendor sales claims.
How To Transfer Employees From EOR To Your Own Entity Step By Step
For mid-market companies in Europe and the UK, an EOR-to-direct-employment transition typically takes 4 to 12 weeks per country from decision to first compliant payroll when a new payroll provider, benefits enrolment, and statutory registrations are required, according to Teamed's operating playbooks for multi-country transitions.
This guidance is not legal advice. Local law and individual contracts must be reviewed with qualified counsel.
Phase 1: Decision and planning
Confirm your business case, timing, and sequencing by country. Identify owners in HR, Finance, and Legal, and align leadership. Map your employee list and flag sensitive cases like visa holders or employees on protected leave.
Phase 2: Review EOR services agreement and employee contracts
Check notice periods, termination mechanics, and exit fees. Clarify how accrued leave, bonuses, and benefits are treated. Identify any obligations around transition support and data handover.
Phase 3: Entity and payroll readiness
Confirm local registrations, payroll provider selection, bank accounts, and reporting calendars. Align payroll cut-off dates and plan a parallel run if needed. Ensure benefits carriers are set up and comparable to (or better than) EOR provisions.
Phase 4: Define effective dates and transition plan
Set the termination date with the EOR and start date with your entity to avoid gaps. Coordinate with the provider on final payroll, deductions, and reporting.
Phase 5: Draft and issue new employment contracts
In the UK, employers must provide a written statement of employment particulars from day one of employment, so an EOR-to-entity move requires compliant day-one documentation for the new employing entity even if the job does not change. Localise terms to law and internal standards. Address continuity language as appropriate with counsel.
Phase 6: Coordinate termination and new hire actions
The EOR executes formal termination steps while your entity issues offers and onboarding. Ensure final pay versus first pay alignment and maintain benefits continuity.
Phase 7: Post go-live checks
A typical operational risk window in an EOR exit is the first 30 to 60 days after go-live, when payroll, benefits enrolment, and leave balances are most likely to show discrepancies that require rapid correction, according to Teamed's transition governance guidance.
Legal And Compliance Risks When Moving From Employer Of Record To Direct Employment
The highest operational risk in an EOR exit typically differs from the steady-state risk of being on an EOR, because most errors occur during handover of year-to-date payroll values, benefits enrolment, and leave balances rather than during routine monthly processing.
You're managing two sets of obligations simultaneously: ending the EOR employment correctly and starting the new employment correctly under your entity.
Employment law risks: Wrongful dismissal claims if notice periods aren't respected. Continuity of service confusion affecting leave, severance, or redundancy rights. Mishandling accrued leave, bonuses, or variable pay. In EU contexts, missing works council oversight or collective agreement requirements.
Continuity of service is an employment-law concept that determines whether a worker's prior service counts toward statutory rights such as notice, redundancy, and leave accrual, and it is determined by local law and the contract structure used during the transition.
Tax and payroll risks: Incorrect withholding, missed registrations, or misaligned reporting cycles. Gaps or overlaps in contributions between EOR and your payroll. For UK employers, statutory minimum notice after two years' service is one week per completed year of service up to 12 weeks under the Employment Rights Act 1996, which can materially affect EOR termination timing.
Data protection risks: Under UK GDPR, the maximum administrative fine for serious infringements can be up to £17.5 million or 4% of global annual turnover, whichever is higher, which makes employee-data transfer controls a board-level issue during EOR exits.
Many HR leaders tell us: "We were surprised by how much of the risk sat in the handover, not in the steady state."
How EOR To Payroll Migration Works For Mid Market Companies
Moving an employee from an EOR to direct employment differs from switching EOR providers because an EOR-to-entity move changes the legal employer, while an EOR switch keeps a third party as legal employer and typically preserves the same employment model risks and limitations.
When you move to direct employment, you become the legal employer with full responsibilities for payroll accuracy, filings, benefits administration, and data handling. That's a fundamentally different operating model.
Designing your payroll operating model:
A RACI matrix is an operating-model tool that assigns who is Responsible, Accountable, Consulted, and Informed for each step of an EOR-to-entity transition, reducing errors caused by unclear ownership between HR, Finance, Legal, and vendors.
Define ownership for monthly payroll approvals, compliance calendars, and reconciliation. Establish controls including segregation of duties, audit trails, and data protection protocols. Select vendors with clear SLAs and escalation paths.
Core payroll setup steps: Registrations with tax and social authorities. Provider selection and onboarding. Banking setup for payroll and statutory payments. HRIS and payroll integration. Parallel testing before go-live.
A common payroll-control standard during an EOR exit is to allow at least one full payroll period for reconciliation of year-to-date taxable pay and statutory withholdings between the EOR and the new payroll, according to Teamed's payroll migration checklists.
Avoiding common pitfalls: Mis-timing cut-offs leading to over or underpayments. Missing benefits enrolments or statutory insurances. Unclear RACI between HQ and local vendor. Data privacy missteps during file transfers.
Pilot one country, refine your playbook, then roll out. Protect your limited HR and Finance bandwidth.
Special Considerations For European Companies Switching From EOR To Local Entities
European employment culture shapes expectations around this transition. Stronger default protections, structured notice, and consultation norms mean leadership often expects more formal processes than non-European markets require.
Regulatory alignment matters. Balance group-wide policies (benefits philosophy, equity treatment, DEI standards) with country law and market norms. What works in your London HQ may not translate directly to Germany or France.
Intra-Europe complexities: Labour leasing and temporary agency rules, collective bargaining agreements, and works council considerations vary significantly. In Germany, if a works council exists, specific operational changes affecting employees can trigger information and consultation obligations, so German EOR exits should include an early check for works council coverage before setting dates.
Expanding into the United States: At-will employment, fragmented state rules, and different benefit expectations create a distinct landscape. This affects both when to graduate from EOR and how to structure packages.
Data protection emphasis: Cross-border transfer of employee personal data from an EEA employer to a non-EEA entity must rely on a valid transfer mechanism such as an adequacy decision or Standard Contractual Clauses, and this applies during EOR data handover as well as in steady state.
As an example, a UK-headquartered firm may be surprised by how little formal process is legally required for a role change in some jurisdictions, even though they choose to apply higher internal standards.
Teamed, headquartered in London with coverage in 180+ countries, aligns European governance expectations with local execution realities.
How To Prioritise Countries For EOR To Entity Transition In A Multi Country Strategy
Choose a phased EOR exit when you operate across five or more countries and your HR and Finance teams cannot safely absorb more than one to two country payroll go-lives per quarter.
Avoid moving all countries at once. Your People and Finance teams have limited bandwidth, and transition quality suffers when you overload them.
Prioritisation framework:
Consider headcount concentration and growth trajectory. Evaluate strategic importance and customer or regulatory expectations. Assess cost profile and economies of scale potential. Factor in operational pain from errors, delays, or limited benefits flexibility. Account for compliance risk including labour leasing scrutiny and enforcement trends.
Example groupings:
Core markets with long-term presence justified should move to entity and own payroll first. Satellite or growth markets can maintain EOR while testing scale and demand. Complex or high-risk markets warrant an advisory-led approach, delaying entity until capabilities mature.
Some jurisdictions merit earlier transition due to local rules or enforcement, even with modest headcount. Others can remain on EOR longer without issue.
Your roadmap should be a living document that you revisit as markets grow or regulatory conditions change. Coordinate with business, tax, and regional hub plans. Integrate with group reporting and data protection requirements.
Teamed helps build a global employment roadmap defining order, model per country, and internal capabilities needed at each stage.
Practical Steps To Communicate The EOR To Direct Employment Change To Employees
An EOR-to-direct-employment transfer is often implemented as an EOR termination and a new employment contract with aligned effective dates. That's a significant change from the employee's perspective, even if their day-to-day work stays identical.
What employees worry about: Job security and whether their role changes. Continuity of tenure and statutory rights. Benefits changes including health, pension, and accrued leave. Visa and work permit implications.
Key messages to cover: Why you're making the shift and what it enables. What stays the same (role, manager, compensation, location). What changes in the contract or benefits and when. How tenure, leave balances, and equity will be handled. Where to get help.
Staged communication plan:
Before you announce: Align leaders, brief managers and HRBPs, prepare country-specific FAQs and scripts.
During the transition: Country-level announcement, followed by individual conversations and written documentation.
After the switch: Confirm payroll and benefits accuracy, gather feedback, address issues promptly.
Many employees will ask: "Is my day-to-day job changing?" Address that explicitly and early.
For employees on work visas, changing employer can impact work authorisation. Consult qualified immigration counsel early and sequence steps to avoid any gap in work permission.
How Teamed Helps Mid Market HR And Finance Leaders Plan EOR Exits With Confidence
For mid-market organisations, the EOR-to-entity decision affects compliance, cost, and culture. Most lack dedicated global employment expertise to navigate it confidently.
Teamed acts as a long-term advisory partner, helping leaders decide when to use contractors, when to stay on EOR, and when to invest in entities. We provide strategic clarity through readiness assessments, market-by-market options, and scenario modelling. We surface risk visibility around legal and compliance pitfalls, sector-specific obligations, and documentation for boards and auditors. And we deliver execution support through operating model design and end-to-end transition across 180+ countries via Teamed infrastructure.
Many HR leaders tell us they just want one expert place to go with all their global employment questions.
If you're evaluating your EOR footprint, growth plans, and pressure points, talk to the experts for an initial conversation about your options.
FAQs About Transferring Employees From EOR To Direct Employment
What happens if we only want to move some employees off the EOR and keep others on it?
It's generally possible to transition selected employees while keeping others on EOR. Plan carefully to avoid perceived unfairness, inconsistent terms, and compliance issues. Align messaging and ensure comparable benefits where feasible.
What happens to employee tenure and statutory rights when moving from an EOR to direct employment?
Continuity of service depends on local law and contract wording. Get local legal advice and be transparent with employees about how prior service will be treated for leave, severance, and other rights.
How does an EOR to direct employment transfer affect stock options and equity plans?
Equity plans usually sit outside the EOR contract, and participation often continues with the entity. Review plan rules and tax or regulatory effects with legal and tax advisors before the move.
What if the EOR provider refuses to cooperate or is very slow in processing terminations?
Start with the EOR services agreement for notice and exit terms. Escalate within the provider, seek legal advice if needed, and adjust timelines to protect employees from disruption.
How does moving from EOR to direct employment interact with employee visas and work permits?
Changing employer can impact work authorisation. Consult qualified immigration counsel early and sequence steps to avoid any gap in work permission.
How long does an EOR to direct employment transition usually take in practice?
For a single employee move where the client entity and payroll are already live in-country, the administrative handover can often be executed within one monthly payroll cycle, typically 2 to 6 weeks, according to Teamed's implementation benchmarks. Multi-employee transitions requiring new entity setup take 4 to 12 weeks per country.
What is mid-market?
Typically organisations with around 200 to 2,000 people or roughly £10m to £1bn in revenue. Teamed focuses its advisory model on companies in this range operating across multiple countries.or
