In the fast-paced world of startups, failure rarely stems from a lack of ideas. Instead, many early-stage companies run into a more critical issue: burning through their cash too quickly. One of the hidden culprits behind this problem? Overspending on full-time hires — often through Employer of Record (EOR) services.
Many founders turn to EORs thinking it’s the safest way to build a global team. But in reality, relying too heavily on these services can be a costly misstep, especially in the early days when speed, flexibility, and cost-efficiency are essential.
Why EOR Services Fail Startups
At their core, startups face three challenges when building teams: completing tasks efficiently, hiring quickly, and keeping costs low. EORs often fail on all three fronts.
- Speed: Hiring through an EOR is notoriously slow. The process includes extensive compliance checks, contract negotiations, and onboarding delays. What might take days with a contractor can stretch into months with an EOR — a delay many startups can’t afford in today’s AI-accelerated market.
- Control: When startups lack a legal entity in a new market, EORs become the legal employer. This limits a startup’s control over IP rights, work terms, and even day-to-day operations. In regions with employee-friendly labor laws — like Brazil or Spain — founders risk costly legal battles if things go wrong.
- Cost: The average EOR service costs around $599 per employee per month. That’s a heavy overhead for early-stage companies that need to maximize every dollar. Add potential severance and legal fees, and the total spend quickly becomes unsustainable.
The Better Alternative: Contractor of Record (COR)
Startups looking to scale smartly should consider using a Contractor of Record (COR) or contractor management service. These platforms offer the same global reach without the high cost or rigid structure of EORs.
CORs allow startups to onboard talent within days, not weeks. The fees are significantly lower — ranging from $39 to $70 per month — and the contracts offer more flexibility. Startups maintain greater control over project scope, timelines, and intellectual property while avoiding complex labor laws tied to full-time employment.
When an EOR Might Still Make Sense
There are scenarios where an Employer of Record is the right choice. If a candidate insists on a full-time role with full benefits, or if the startup is hiring a high-level strategic hire expected to stay long-term, then EORs can be the right fit.
EORs may also be helpful in cases where a startup is expanding into a region that’s hard to navigate from a payroll or legal standpoint, or when setting up a local entity is part of a broader growth plan.
Final Takeaway: Flexibility Wins
Startups don’t have to lock themselves into costly full-time hires to build great teams. By switching from EORs to contractor management services or CORs, founders can move faster, reduce overhead, and maintain control.
For seed and Series A startups especially, staying lean and adaptable is key to survival. Choosing the right hiring structure could be what separates a thriving startup from one that runs out of runway too soon.
