Many companies that choose to do business in the UK find themselves in a tricky situation: they want to employ people to develop the business, but lack the necessary legal and business apparatus to do so.
They’re faced with a dilemma: how do we legally employ people without actually setting up a company?
For a long time, those companies have had to either bite the bullet and either set up a full company – which will take time and cost money they might not have to spare as their business grows – or go down another route and engage the services of an Employer of Record company.
Taking care of business?
The idea is simple: the Employer of Record (EoR) provider acts as a kind of proxy employer for the overseas business, employing people on its behalf. In doing so, the EoR company handles all the admin: payroll (including taxes), pensions, employee benefits when applicable.
The attraction is clear: the EoR takes a lot of the hassle out of employing people and removes one of the barriers to growing a business in a new territory like the UK. These companies are adept at onboarding employees – that’s essentially their USP; and they know how the system works, and exist to help businesses navigate it.
They are also helpful in allowing a company to experiment with different arrangements at a relatively low initial cost. And finally, they are quick: EoR’s are designed to onboard employees fast so the speed is part of the appeal.
So in some ways the EoR makes perfect sense if you’re looking to get employees set up and working fast.
Not for everyone
However, there are significant downsides to using an EoR, and they are worth understanding because they can cause some trouble further down the line as a business begins to grow.
Firstly, the nature of the EoR models emphasises onboarding lots of employees quickly, and that means they are not well attuned to the specifics of your business. They take a ‘one size fits all’ approach to this so you shouldn’t expect bespoke service tailored to your individual needs.
Then, there is the issue of control. Whichever way you look at it, your relationship with your employees is important – it’s one that requires trust, clarity, communication, and a clear awareness of the important things that are happening on both sides. EoR’s are middlemen and as such they don’t allow that relationship to develop, nor do they encourage a healthy culture of long term planning or belonging – the model is transactional and stays that way.
And it’s that element that can make transitioning away from and EoR arrangement tricky. Given the set up and the ongoing transactional model, the process of moving away from that and bringing employees into your own employment can be a little bit like starting from scratch.
Do it Yourself
All of which begs the question: what are the alternatives? If I want to expand my business into the UK and bring some employees on board to help me, what can I do?
This a question we often get asked by businesses who are either not keen to start an EoR arrangement, or those that have, and are keen to move on from it. And there are several answers, but setting up a branch or subsidiary is usually most cost-effective and flexible in the medium/long term, especially if:
- You plan to grow headcount in-country.
- You care about employee integration with your culture.
- You want full control over contracts, benefits, and brand.
- You want to avoid “outgrowing” the EoR model later.
Doing this has several advantages when it comes to employing people. Beyond the obvious element of control – doing it this way gives you complete oversight of your employment picture – it also allows you to develop a stronger, more adaptable and valuable workforce.
The ties that Bind
People employed directly by your business tend to feel a greater sense of ownership and loyalty, invest more of themselves into their work and are more likely to contribute ideas and energy as you grow. Direct employment also has the added benefit of giving you the chance to train and develop your people – which should improve performance, lower churn and ultimately save a lot of time and money in the long term. It’s also likely to improve how your people feel about you as an employer. In fact it’s also possible for an overseas employer to set up a UK PAYE (Pay As You Earn) scheme in the Company’s own name without even setting up a Subsidiary or a Branch if they have employees who are working in the UK or are subject to UK income tax, depending on the situation.
There’s no doubt that EoR’s have their place, and they do work for some businesses some of the time. But it’s also true that spending a little bit more time to set up a more permanent structure equips you with a stronger, more flexible working arrangement that won’t require constant updating. It will also be cheaper in the long run, and allow you to really start building a healthy and coherent workforce culture that prizes loyalty and engagement.
It’s perhaps useful to think of it in this way: EoR is like renting — flexible, but expensive and not yours; setting up a Branch or Subsidiary is more like buying — there may be more to do upfront, but you own it, shape it, and it appreciates in value. Which one works best for you will depend on your needs.
Wherever you are in your growth journey, getting the right advice and support from a corporate service provider is vital. That is why at Paul Beare we offer a full range of accounting services, from tax and payroll to accounting and banking.
- Written by: Paul Beare
- Posted on: September 18, 2025
- Tags: employee, feature, Setting up in the UK