Do I have to set up a legal entity to employ people in house?

Yes, in each country where you employ directly. Employment obligations attach to the legal entity on the contract, so running your own HR model means registering an entity and completing local payroll and tax registration first. That is the step an employer of record removes by employing the worker through its own entity.

Is in-house always more expensive than an EOR?

No. It is usually costlier when headcount in a country is small, because the fixed cost of an entity and local specialists is spread over few people. As numbers grow, the per-head cost of outsourcing can overtake the fixed cost of an entity, and in house becomes the cheaper choice.

How long does the in-house route take to stand up?

It varies widely by country. Registering an entity can take from a few weeks to several months, before you add payroll setup, contracts, benefits and local advice. This lead time is a common reason companies use an employer of record to start hiring immediately, then move in house later.

Can I switch from an EOR to an in-house model later?

Yes, and it is a common path. Companies often begin with an employer of record to test a market, then set up their own entity and transfer the employees once the country proves worth the investment. Planning the handover carefully avoids a gap in employment or compliance during the move.

Glossary

In-House HR Model

The in-house HR model is the approach in which a company builds and runs its own HR, payroll and compliance functions internally, rather than using a PEO or employer of record, which means employing staff through its own registered entity in each country.

Reviewed by Teamed's in-house employment-law team·Last updated 28 July 2026

Also known as: in-house employment model, direct employment model

What is In-House HR Model?

The in-house HR model is where a company employs people directly and runs the surrounding functions itself. It hires HR staff, licenses payroll software, takes its own legal advice, and registers a legal entity in each country where it employs workers. Nothing is handed to a third-party employer; the company is the employer.

The trade-off is control against overhead. Running HR in house gives full ownership of process, culture and data, and can work out cheaper once headcount in a single country is high enough to spread the fixed cost. Below that point, the entity, the specialists and the local compliance burden can cost more than outsourcing.

This is why the in-house model is usually compared with a PEO or an employer of record. Those routes let a company employ people without its own entity in a market, useful early or when testing demand. Many businesses start outsourced, then bring employment in house once a country proves worth the fixed investment.

What does the in-house HR model require?

It requires a registered legal entity in each country, plus the machinery to run employment: HR staff, payroll software or a payroll bureau, employment contracts that meet local law, benefits arrangements, and access to legal advice. Each new country repeats the setup, because employment obligations attach to the entity on the contract.

When does in-house become cheaper than an EOR?

Broadly, when headcount in one country grows enough to spread the fixed cost of an entity and local specialists across many employees. Below that crossover, per-head outsourcing is usually cheaper and faster; above it, owning the entity tends to win. The exact point depends on salaries, statutory costs, and how much local support you need.

Can a company mix in-house and outsourced employment?

Yes, and many do. A common pattern is to keep large, established markets in house through owned entities, while using an employer of record for new or smaller markets where an entity is not yet justified. The mix shifts over time as each country grows, with employment brought in house once the numbers support it.

Key facts

Direct employment requires local registration (US example): Employing people directly means registering with the local tax authority in each country first. In the US, for example, a business with employees must obtain an Employer Identification Number from the IRS to run payroll and report federal employment taxes.Registering an entity and payroll can take from a few weeks to several months depending on the country, which is the lead time an employer of record removes.Source: Internal Revenue Service, Publication 1635· verified 2026-07-28

In-house employment vs employer of record

	In-house	Employer of record
Own legal entity	Required in each country	Not required
Time to first hire	Weeks to months (entity setup)	Days to weeks
Cost profile	Fixed cost, better at scale	Per-head cost, better when small
Who employs the worker	The company	The EOR

Frequently asked questions

Do I have to set up a legal entity to employ people in house?
Yes, in each country where you employ directly. Employment obligations attach to the legal entity on the contract, so running your own HR model means registering an entity and completing local payroll and tax registration first. That is the step an employer of record removes by employing the worker through its own entity.
Is in-house always more expensive than an EOR?
No. It is usually costlier when headcount in a country is small, because the fixed cost of an entity and local specialists is spread over few people. As numbers grow, the per-head cost of outsourcing can overtake the fixed cost of an entity, and in house becomes the cheaper choice.
How long does the in-house route take to stand up?
It varies widely by country. Registering an entity can take from a few weeks to several months, before you add payroll setup, contracts, benefits and local advice. This lead time is a common reason companies use an employer of record to start hiring immediately, then move in house later.
Can I switch from an EOR to an in-house model later?
Yes, and it is a common path. Companies often begin with an employer of record to test a market, then set up their own entity and transfer the employees once the country proves worth the investment. Planning the handover carefully avoids a gap in employment or compliance during the move.

Related terms

Note

This is general information, not legal advice. Statutory rules vary by country and change over time.

Glossary

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Last verified 2026-07-28