Employer of Record (EOR) vs setting up your own entity in Eastern Europe: Which is better?
- Gegidze • გეგიძე | Marketing
- Jul 10
- 11 min read
Table of contents:
Introduction
Your frontend developer in Vilnius just accepted the offer. Your designer in Kraków is next in line. Everything looks like it’s falling into place, until you hit payroll setup in Lithuania, tax registration in Poland, and labor law requirements in Bulgaria.
You thought you were hiring remote employees. Suddenly, you're facing nine tax systems, four legal languages, and a minefield of labor compliance, all without a local entity, and no Jedi in sight to wave away the rules.
This is the decision point every company hits when expanding into Eastern Europe:
Do you build a local legal entity or use an Employer of Record (EOR) in Eastern Europe?
It’s not just a legal question. It’s a growth decision.
Because every week spent navigating local red tape is a week you’re not shipping product, onboarding talent, or closing deals.
This article gives you the full breakdown:
How EORs work in Eastern Europe
What it really takes to set up your own entity
How much does each path cost
When the trade-off is worth it, and when it’s not
Whether you’re building a cross-border team or expanding into your first EU market, you’ll walk away with the clarity to move fast and legally. Let’s get into it.
What is an Employer of Record in Eastern Europe?
An Employer of Record (EOR) is your legal shortcut to hiring in Eastern Europe without setting up a local company.
In countries like Poland, Romania, Bulgaria, and Ukraine, an EOR acts as the legal employer of your team on paper, while you stay in charge of the work they do. It’s the fastest way to build a compliant remote team without dealing with registration forms, tax filings, or employment contracts in five different languages.
How it works
Let’s say you want to hire a backend developer in Romania and a QA specialist in Poland. Instead of opening two separate legal entities, registering for tax, hiring lawyers, and waiting two months, you partner with an EOR.
The EOR already has a registered company in those countries. So, they hire the employees on your behalf, handle the compliance, and then second the employees to you. You manage the work. They manage the paperwork.
What the EOR handles
Across Eastern Europe, EOR services typically include:
Locally compliant employment contracts in the national language
Monthly payroll processing, salary disbursement, and payslips
Tax and social security filings, including income tax, pension, and health insurance
Employee benefits, such as paid leave, sick days, or private health plans (where required)
Onboarding, offboarding, and HR recordkeeping
In short, they do the legal lift so you don’t have to.
Why companies love EORs in Eastern Europe
Speed: Start hiring in days, not months
Scalability: Add team members in different countries without setting up multiple entities
Compliance: Stay on the right side of labor law in every market
Flexibility: Test new markets without long-term investment
Whether you’re exploring the Polish tech scene or sourcing top engineering talent in Ukraine, an EOR lets you move fast without stepping into legal quicksand.
What it takes to set up your own legal entity
Setting up your own entity in Eastern Europe sounds strategic, until you actually try doing it. Each country brings its own maze of tax codes, labor laws, language requirements, and banking headaches. For many companies, it’s not just time-consuming, it’s a momentum killer.
But if you’re building a local hub, applying for government contracts, or hiring 30+ people, the commitment may be worth it.
Here’s what you’re signing up for.
Step-by-step setup across Eastern Europe
While specifics vary, here’s the typical flow across Poland, Romania, Bulgaria, and Ukraine:
Choose a legal structure (LLC, branch office, rep office)
Register with national authorities (Romania’s ONRC, Poland’s KRS, etc.)
Obtain a tax ID and VAT number
Open a local bank account (often in local currency + proof of address)
Register with Social Security and labor offices
Set up local payroll, accounting, and HR processes
Find a legal representative or director residing in the country (in some cases)
What slows companies down
Language barriers: Most forms and contracts must be in Polish, Romanian, or Ukrainian, and require notarized translations
Banking bureaucracy: In-person appointments, strict AML checks, and long wait times are common
Tax and payroll complexity: Each country has different rules on income tax, social contributions, and benefits
Local address requirement: You may need to lease a local office before you can even begin
Expect 6–12 weeks for a full setup, even longer if paperwork gets rejected or translation issues crop up.
When does it make sense?
Setting up your own entity makes more sense if:
You’re hiring 20+ employees in one country
You’re planning a physical office or R&D hub
You want to bid on public contracts or grants
You’re already committed to long-term operations in that market
Otherwise? It’s overkill.
For lean, remote-first companies or early-stage expansion, an EOR gives you 95% of the flexibility with none of the setup pain.
Key differences at a glance
If you’re trying to decide between using an Employer of Record (EOR) or setting up your own legal entity in Eastern Europe, the decision boils down to one thing: what kind of operation are you really building?
Need to hire in a week with no red tape?
Use an EOR.
Need full control, physical presence, and long-term investment?
Consider your own entity.
Here’s how the two options compare side by side:
If your priority is speed, simplicity, and staying lean, an EOR wins hands down.
If you’re in it for the long haul and want to invest heavily in a specific country, the time and cost of setting up your own entity might pay off.
Cost comparison in detail
Let’s get honest: no one builds a team expecting to burn €15,000 before the first paycheck goes out. But that’s what entity setup in Eastern Europe can look like, and that’s exactly why so many startups start with an EOR.
Here’s how the numbers stack up.
Option 1: EOR – pay-as-you-scale
Most EORs in Eastern Europe charge a flat monthly fee of €199–€299 per employee, depending on the country and complexity of services. This covers:
Legally compliant contracts
Monthly payroll & taxes
Social contributions & filings
Benefits administration
Local compliance and labor law updates
No setup costs. No waiting period. Just plug and play.
Option 2: Setting up your own entity
Here’s what you’re paying upfront if you go the traditional route:
Monthly ongoing costs:
Payroll services
HR & legal advisory
Bookkeeping, tax filing
Internal admin team or external retainers
→ Expect €500–€1,500/month, depending on size and location.
Scenario 1: Hiring 3 remote team members via EOR
EOR Cost: €199 × 3 × 12 = €7,164/year
Setup time: 7–10 days
Overhead: None
Scenario 2: 3-person team via own entity
Year 1 setup: ~€10,000
Annual admin: €1,000 × 12 = €12,000
Total: €22,000+
Setup time: 8–12 weeks
Hidden costs: Local director, HR staff, penalties if you get compliance wrong
Why startups start with EOR, then scale
Early-stage companies don’t need legal complexity. They need fast, low-risk hiring to prove the market, deliver results, and raise the next round.
An EOR gives you that.
And if the team grows or you land that Series A?
You can switch to an entity when it actually makes sense.
Payroll, taxes & compliance in Eastern Europe
Eastern Europe offers world-class talent, engineers in Poland, product managers in Romania, designers in Bulgaria, but hiring them legally isn’t plug-and-play.
Each country has its own payroll laws, social contribution systems, tax brackets, and reporting deadlines.
Miss one step, and you’re facing fines, frozen accounts, or worse: lawsuits from your own employees.
Let’s break down the risk and how an EOR takes it off your hands.
Payroll in this region isn’t standardized
There’s no one-size-fits-all payroll system in Eastern Europe. Here’s what varies by country:
Income taxes: Flat tax in Bulgaria (10%), progressive tax in Poland (12–32%), fixed plus surtax in Ukraine
Social security contributions: Split between employer and employee, with different rates for pensions, healthcare, and unemployment
Payroll cycles: Monthly in most countries, but deadlines and penalties differ
Payslip requirements: Format, language, and delivery method must meet local rules
Mandatory filings: National insurance, labor registries, tax authorities—all with different forms and digital portals
Even something as basic as minimum wage laws or holiday pay requirements can trip up companies that aren’t familiar with local code.
The compliance trap
If you misclassify an employee, pay taxes late, or use a contract in the wrong language, you could be on the hook for:
Back pay
Retroactive taxes
Employee lawsuits
Regulatory fines
Revocation of business licenses
And no, “We’re based in London” won’t get you out of it.
EOR = full compliance, no stress
An Employer of Record handles the entire payroll + compliance process:
Registers the employee with local authorities
Calculates and pays income tax and social contributions
Issues with compliant payslips in the local language
Files monthly and annual tax reports
Updates everything in real time if local laws change
They’re the legal employer, which means the risk is theirs, not yours.
If you want to scale into Eastern Europe without building an in-house legal team in five countries, EOR is how you do it right and fast.
Contracts & HR administration
Hiring in Eastern Europe doesn’t just mean offering someone a salary and calling it a day. In countries like Poland, Romania, Bulgaria, and Ukraine, labor contracts come with non-negotiables: mandatory clauses, local language requirements, strict notice periods, and well-defined probation rules.
Mess that up, and you’re exposed to lawsuits, back pay, or invalid terminations.
Here’s how employment contracts actually work, and how an Employer of Record (EOR) keeps your admin tight and legally sound.
Mandatory contract components
Across Eastern Europe, employment contracts must be written in the local language, Polish, Romanian, Bulgarian, or Ukrainian, even if the day-to-day working language is English.
They must include:
Full job title and description
Workplace location (even for remote roles)
Base salary and bonus terms
Working hours (standard vs flexible)
Probation period (typically 1–3 months)
Annual leave entitlement (e.g., 20 days in Poland, minimum)
Termination notice periods (commonly 15–30 days)
Social contributions and tax obligations
Collective labor agreements, if applicable
In many countries, verbal contracts or “offer letters” are not legally binding or enforceable.
Terminations must be by the book
You can’t just fire someone with an email and a month's notice. Each country has its own termination procedures, and you may need to:
Provide a written warning before dismissal
Offer severance depending on tenure
Justify terminations based on law (e.g., redundancy, performance, misconduct)
Notify or consult labor unions (especially in Bulgaria and Romania)
One misstep here can land you in labor court, even if you’re a foreign company.
What an EOR handles for you
With an EOR, you skip the legal guesswork. They:
Draft locally compliant contracts in the native language
Manage onboarding documentation and payroll records
Handle contract updates if laws change
Manage resignations, terminations, and severance
Track vacation days, sick leave, and public holidays per local rules
Store employment files securely for audit compliance
And most importantly, you avoid direct employer liability.
They’re the legal employer. You get to focus on the team’s output, not the HR paperwork.
Equipment & workspace in Eastern Europe
Let’s talk about what happens after you hire, because your dev in Bucharest still needs a laptop, your product manager in Kraków needs Notion access, and your QA lead in Sofia wants to know if remote is allowed full-time.
Whether you go EOR or set up your own entity, how you handle equipment, workspace, and offboarding will impact compliance, productivity, and cost.
Who provides the laptop?
With an EOR, most companies still provide their own equipment. You ship the device directly to the employee or use a local vendor in-country.
Some EORs offer hardware procurement and delivery services for an added fee, including setup and asset logging. Software licenses, VPNs, and SaaS tools? Still your responsibility.
If you operate under your own entity, you’re the legal employer, so the burden’s on you to manage procurement, delivery, inventory, insurance, and returns. You’ll also need local IT vendors or staff for setup and troubleshooting.
Where do employees work?
Eastern Europe is remote-friendly, but legal classification still matters.
Coworking spaces are widely used in cities like Warsaw, Sofia, and Cluj. They’re great for hybrid setups and can be arranged by you or through the EOR.
Fully remote is common, but you still need to define a registered workplace in the employment contract, even if it’s the employee’s home.
Physical offices require full compliance with local workplace health & safety laws—layout, fire exits, equipment ergonomics, etc.
An EOR handles workplace declarations and remote work registrations for you. With your own entity, you handle inspections, insurance, and all the red tape.
Asset tracking and offboarding
With either model, you own the equipment, but tracking it is easier with an EOR’s help. They log assets per employee, assist with recovery during offboarding, and ensure compliant handover documentation.
Managing it yourself? You’ll need local legal templates, shipping partners, and a clear chain of custody, especially if you're reclaiming devices across borders.
In short: EORs help you scale without logistics chaos. Your team gets what they need, and you stay legally covered.
Ask ChatGPT
EOR vs PEO vs Contractors in Eastern Europe
If you're hiring in Eastern Europe, you’ve likely seen these three terms tossed around: EOR, PEO, and contractor. They’re not interchangeable, and choosing the wrong model can expose you to fines, audits, or invalid contracts.
Let’s break them down, then show you why EORs are often the only legally safe path if you don’t have a local entity.
Misclassification risks are real
In Poland, Romania, and Bulgaria, labor inspectors don’t just look at your contract; they look at the actual working relationship. If you hire a full-time “contractor” who works fixed hours, reports to a manager, and uses your tools, you’ve just created an employee, on paper or not.
And the penalties?
Back taxes & social contributions
Fines up to €30,000+
Employment lawsuits for benefits and severance
Poland, in particular, has stepped up audits in the tech and startup sectors. If you're hiring from the talent pool in Eastern Europe to build long-term capacity, not just a one-off gig, contractors are a risky business.
Why PEOs fall short
A Professional Employer Organization (PEO) provides HR and payroll services. But in Eastern Europe, PEOs only work if you already have a local entity. That’s because PEOs act as co-employers, not legal employers.
If you don’t have a registered company in Romania or Poland?
A PEO can’t help you.
When EOR is the only smart option
An Employer of Record (EOR) is the legal employer. They take full responsibility for tax, compliance, payroll, and local employment law.
Here’s how the three models compare:
If you want to hire legally without setting up an entity, an EOR isn’t just convenient, it’s your only safe move.
Conclusion: What’s best for your business?
So, EOR or entity?
Here’s the honest answer: it depends on how fast you’re growing, how many people you’re hiring, and how deeply you’re investing in Eastern Europe.
If you're scaling lean, testing a new market, or need to hire yesterday, an EOR is your best move. You stay focused on the work while a local legal team handles contracts, payroll, compliance, and all the regulatory noise. No entity. No delays. No fines.
But if you’re planning to build a physical office, land government contracts, or run long-term operations with 20+ employees in one country, setting up your own entity might be worth it, despite the bureaucracy, delays, and ongoing admin.
If you're still unsure, you're not alone. Most global teams start with an EOR, then transition to an entity when the headcount and costs justify the switch.
Need help figuring out your next move?
Talk to Team Up about hiring in Eastern Europe
We’ll show you what’s fastest, safest, and most cost-effective for your goals, not someone else’s.
