EOR vs Entity in Germany: Employer of Record or German Subsidiary?

When expanding into Germany, many companies quickly find themselves weighing up EOR vs entity options for hiring their first local employees. Both an Employer of Record and a German subsidiary can be compliant, but they suit very different timelines, budgets, and growth plans.​

What EOR vs entity means in practice

At a high level, EOR vs entity is a choice between outsourcing employment to a specialist versus building your own legal footprint in Germany. With an Employer of Record in Germany, a third‑party becomes the legal employer on paper, while you manage day-to-day work and performance for your German team.​

Choosing an entity means incorporating a local company, such as a GmbH, registering with German authorities, opening bank accounts, and running payroll, HR, and compliance in-house. This gives you full control but also puts all legal and administrative responsibility for German employment law on your own shoulders.​

Speed to market

From a speed perspective, EOR vs entity is rarely a close contest. An EOR with an established presence can often onboard German employees within a few weeks by leveraging existing registrations, infrastructure, and processes.​

Setting up a German entity is slower: you will typically go through notary appointments, commercial‑register filings, tax registrations, and bank KYC before you can even run payroll. That can stretch into several months, which is a significant delay if you need key talent on the ground quickly.​

Cost, flexibility, and headcount

Cost is another factor that shapes the EOR vs. entity decision, depending on your stage of growth and headcount plans. EOR pricing is usually per employee, with minimal upfront expenditure and no need for local directors, capitalization, or internal HR hires.​

By contrast, a German entity comes with higher setup and ongoing costs, but may become more economical once your team reaches a certain size and you can spread fixed overheads. Many companies, therefore, use an EOR for early hires in Germany and only move to a GmbH once they have proven long-term demand and stable staffing needs.​

Compliance, risk and German specifics

German employment law, dismissal protection and social‑security rules are detailed and strictly enforced, which should shape any EOR vs entity decision. With an EOR, the provider takes on day‑to‑day responsibility for German‑law contracts, payroll calculations, social contributions and staying ahead of legal changes.​

If you opt for an entity, your German company must handle all of this internally or via local advisers, including managing audits, disputes and potential fines. That risk is amplified if you try to rely heavily on contractors instead of employees, given Germany’s sensitivity to misclassification and labor‑leasing issues.​

Control, brand and long‑term presence

On the control side of EOR vs entity, a German GmbH normally offers the strongest local presence. Your own entity can contract directly withGerman customers, hold assets, and present a fully local brand, which may be important for regulated sectors or public tenders.​

An EOR still allows you to embed German employees into your culture, systems and leadership structure, with the main difference being where the employment contract sits. For many international employers, that level of control is sufficient in the early years, particularly when the EOR is positioned as a long‑term partner rather than a short‑term stopgap.​

EOR vs entity in Germany – key differences

When to choose each route

You are more likely to choose an EOR when:​

• You are hiring your first few employees in Germany and need speed.
• You want predictable per-employee costs instead of upfront entity expenditure.
• Your internal HR team is not ready to take on German employment law and payroll.

A German entity usually makes more sense when:

• Germany is a core market with substantial revenue and long-term plans.
• Your projected headcount justifies the fixed costs of incorporation and compliance.
• You need to contract locally in your own name or hold specific licences or approvals.