The Cost of Choice: Comparing Hiring Strategies Across EOR, Contractors, and In-House Teams

In today’s borderless talent market, businesses have more options than ever when building a team overseas. But with that flexibility comes a fundamental question: how should you hire? — through an Employer of Record (EOR), directly as a contractor, or by setting up your own entity and HR operation?

In our previous article about EOR vs Entity Setup, we explored the costs of setting up an overseas entity for market expansion purposes. Today, we dive deeper into offshore hiring strategies without setting up your own entity—comparing Employer of Record (EOR) services, direct contractor engagement, and in-house entity operations.

This comprehensive article breaks down real costs, hidden risks, and strategic trade-offs to help you make the right choice for your expansion stage.

Hiring Strategy Comparison: EOR vs Contractors vs In-House Teams

Let us first look at the three common hiring options available in the market today, each serving different business needs and expansion scenarios:

1. Using an Employer of Record (EOR)

An EOR acts as the legal employer on your behalf. They manage payroll, taxes, social security, and local compliance while you retain full control over the person’s day-to-day work.

Cost Structure

• Monthly EOR service fee (often USD 300 – 600 / SGD 387 – 777 per employee)
• Base salary + statutory benefits (healthcare, social security and other benefits typically in the range of 15-20%)
• FX spread or payment costs (typically 3-5%)
• 1-month refundable security deposit (standard in SEA)
• Additional customisation or administrative costs (varies by vendor)

✅ Pros

• Fast market entry. Hire compliantly in weeks without setting up an entity.
• Compliance peace of mind. All contracts, payroll, and taxes handled by experts.
• Scalable. Add or remove headcount easily as projects evolve.

❌ Cons

• Recurring service fees. Adds 10–20 % to your total employment cost.
• Less structural control. Employees legally sit under the EOR, not your own entity.
• Limited benefits customisation. Benefit schemes must align with EOR standards.

Best for: companies testing a new market, early-stage expansion, or managing distributed teams across Asia. Learn more about EOR companies comparison.

2. Hiring Directly as a Contractor (Without a Local Entity)

Hiring someone as an independent contractor can appear simpler and leaner—you skip payroll registration, pay per invoice or milestone, and move quickly. However, this model carries significant legal risks when not structured properly.

Cost Structure

• Agreed monthly rate or project fee (often 10–30 % higher than salary equivalent).
• Withholding tax (e.g. 2 % in Indonesia under PPh 23).
• Potential misclassification penalties if the relationship looks like employment.

✅ Pros

• Administrative simplicity. No local entity, no payroll setup.
• Flexibility. End or renew projects anytime.
• Speed. Contracts can be signed and work started in days.

❌ Cons

• Legal exposure. If a “contractor” works fixed hours, uses your tools, or reports to your managers, they may be reclassified as an employee — exposing you to back-pay, BPJS, and severance liabilities.
• Limited loyalty. Contractors may juggle multiple clients.
• No integration. They sit outside your internal HR systems and benefits.

Best for: short-term, specialised projects where deliverables are clearly defined and supervision is minimal.

3. Building an In-House Entity and HR Team

Setting up your own local company gives you full control, long-term cost efficiency at scale, and operational permanence—but it’s the most complex and expensive route upfront, requiring significant commitment before you see returns on investment.

Cost Structure

• Incorporation and licensing (~ SGD 5 000 – 10 000 in most SEA markets)
• Monthly accounting and compliance (~ SGD 600 – 1 000 )
• Local HR or admin staff (SGD 1 000 – 2 000 / mo allocation)
• Payroll software / statutory filings
• All employee benefits, severance, and insurance borne directly by you

✅ Pros

• Brand ownership. Employees are legally under your company.
• Full benefit control. Tailor policies, culture, and incentives.
• Lower marginal cost long-term. Once setup costs amortise, the per-employee cost drops.

❌ Cons

• High setup and ongoing overhead. Not worthwhile unless you plan to scale 5–10+ headcount.
• Regulatory burden. You must manage tax, BPJS, audits, and local employment law yourself.
• Slow to start or exit. Incorporation and closure can each take months.

Best for: established firms with stable regional headcount and long-term presence goals.

4. The Big Picture: Cost vs. Control

The fundamental trade-off in hiring model selection extends beyond simple cost comparison. It’s about balancing competing strategic priorities across multiple dimensions that matter to your specific business situation. No single model delivers maximum performance across all dimensions. Understanding what matters most to your expansion helps clarify the right choice:

5. Additional cost considerations

• Time cost of managing contractors and in-house HR operations:

While contractors appear simple on paper, managing multiple freelancers quickly eats into internal bandwidth, from tracking invoices, renewals, and tax compliance to aligning deliverables and managing communication delays across time zones. Once you’re coordinating more than a few, the admin effort can rival that of full-time staff.

In contrast, running an in-house HR setup gives you control but demands constant attention to payroll, local filings, law changes, and employee lifecycle processes. The hidden cost is time: HR and managers may spend 20–30% of their workweek on compliance and administration instead of strategy or growth.

• Liabilities of a contractor model:

The biggest risk with contractor arrangements is misclassification — when someone legally functions like an employee but is treated as an independent contractor. In that case, governments can retroactively charge unpaid social security, taxes, bonuses, and severance (e.g., BPJS and THR in Indonesia). Financially, this can mean six to twelve months of back pay, penalties, or interest. Reputationally, it can invite audits or public scrutiny.

6. How to Decide

• 1–3 hires, testing market: EOR is almost always cheaper and faster than opening an entity.
• 1-off project, short term: contractor engagement works, but paper it carefully to avoid reclassification.
• Long-term regional growth: build your entity once there is a geographical commitment or business necessity.

A blended approach often works best, start with EOR or contractors to test the waters, then transition to in-house once traction and stability justify the investment.

Final Thoughts

Cost is only one dimension. What truly matters is flexibility vs. control. EORs buy you compliance and agility; contractors buy you speed and simplicity; an entity buys you permanence and ownership. The right strategy depends on where your business is on its expansion journey, and how quickly you need to move.

Weighing your options at this time to understand which hiring strategy works best for you? Speak with our expert consultants for a free consultation where we share our insights, cost breakdowns today!