EOR vs Setting Up a Canadian Entity: Cost, Timeline and Break-Even

Use an Employer of Record while you are hiring your first people or testing the market; open your own Canadian corporation when your headcount and time horizon justify carrying fixed overhead. Below: setup time, running costs, risk, and how to find your break-even point.

Quick Comparison

Key differences at a glance

EOR vs Setting Up a Canadian Entity: Cost, Timeline and Break-Even: Quick Comparison
FactorEOR ServiceCanadian Entity
Setup Time 24-48 hours3-6 months
Initial Costs $0 setup fees$5,000-$15,000 (legal + accounting)
Monthly Costs $499-$1,500 per employeeFilings $3,000–$8,000/yr, plus payroll, accounting and HR
Compliance Management Handled by the EORYour responsibility
CRA Registration Not requiredRequired (payroll accounts)
Provincial Compliance Handled by EORYour responsibility
Risk & Liability Employer obligations sit with the EOREmployer obligations sit with you
Scalability Easy to scale up/downFixed costs regardless of headcount
Best For 1-50 employees, testing market, fast hiring50+ employees, permanent presence, large investments

Detailed Comparison

In-depth analysis of each approach

Setup Time & Process

EOR Service

  • Onboarding in 24-48 hours
  • No legal entity formation required
  • No CRA registration needed
  • Simple service agreement
  • Immediate hiring capability

Canadian Entity

  • 3-6 months for complete setup
  • Legal entity incorporation ($500-$2,000)
  • CRA business number registration
  • Payroll account setup
  • Provincial business registration
  • Workers' compensation registration
  • Bank account setup in Canada

Cost Analysis

EOR Service

  • Setup: $0
  • Monthly: $499-$1,500 per employee
  • Annual (10 employees): ~$60,000-$180,000
  • One monthly invoice: salary, employer contributions, fee
  • No entity to wind down if you leave Canada

Canadian Entity

  • Setup: $5,000-$15,000 (one-time)
  • Legal fees: $3,000-$8,000
  • Accounting setup: $2,000-$5,000
  • Annual compliance: $3,000-$8,000
  • Recurring: payroll provider, bookkeeping, year-end filings
  • HR and employment-law advice, plus internal admin time

Break-even point: on cost alone, the crossover depends on your overhead (see the formula below). Many companies stay with an EOR well past it, up to around 50 employees, for the flexibility and because compliance stays off their books.

Compliance & Risk

EOR Service

  • Payroll filings and remittances run under the EOR's accounts
  • Employer obligations sit with the EOR
  • Rate and rule changes applied each payroll cycle
  • No CRA payroll account in your name
  • Dedicated payroll and compliance team

Canadian Entity

  • You handle all compliance
  • Employer obligations sit with you
  • Must stay current with law changes
  • CRA payroll reviews are addressed to you
  • Need internal expertise or consultants
  • Penalties for non-compliance

Source: Canada Revenue Agency - Non-compliance can result in penalties, interest charges, and legal issues.

Operational Complexity

EOR Service

  • Minimal administrative burden
  • Single monthly invoice
  • No Canadian bank account needed
  • No Canadian accounting required
  • Focus on business, not compliance

Canadian Entity

  • Significant administrative burden
  • Payroll processing required
  • Canadian bank account needed
  • Canadian accounting required
  • Ongoing compliance management
  • HR administration

Scalability & Flexibility

EOR Service

  • Easy to scale up or down
  • No fixed costs
  • Pay only for active employees
  • Quick to add/remove employees
  • Ideal for testing markets

Canadian Entity

  • Fixed costs regardless of headcount
  • Compliance costs remain constant
  • More cost-effective at scale (50+ employees)
  • Commitment to Canadian market
  • Less flexible for market testing

Legal & Regulatory Requirements

EOR Service

  • No Canadian entity required
  • No CRA registration needed
  • No provincial business registration
  • EOR handles all registrations
  • Simple service agreement

Canadian Entity

  • Canadian corporation required
  • CRA business number registration
  • Payroll account registration
  • Provincial business registration
  • Workers' compensation registration
  • GST/HST registration (if applicable)

Sources: Canada Revenue Agency, Corporations Canada. Full registration checklist: CRA requirements for U.S. employers.

When to Choose Each Option

Decision factors to consider

Choose EOR Service If:

  • You're hiring 1-50 employees in Canada
  • You need to hire quickly (within days/weeks)
  • You want to test the Canadian market before committing
  • You prefer to focus on business, not compliance
  • You want predictable, transparent costs
  • You need flexibility to scale up or down
  • You want to minimize risk and liability
  • You don't want to manage Canadian payroll and taxes

Choose Canadian Entity If:

  • You're hiring 50+ employees in Canada
  • You're making significant capital investments in Canada
  • You need a permanent Canadian business presence
  • You have specific tax structure requirements
  • You plan to operate in Canada long-term (5+ years)
  • You have internal resources to manage compliance
  • You need specific business arrangements or structures
  • You want direct control over all employment matters

How to Find Your Break-Even Point

Compare the two models with your own numbers

  • Your entity overhead

    A

    per year

    Filings, bookkeeping, payroll provider, HR and legal advice, admin time

  • EOR fee per employee

    B

    per year

    Monthly fee × 12 ($499–$1,500 a month)

  • Break-even headcount

    A ÷ B

    employees

    Below this number, the EOR costs less

  • Then adjust for

    3–6 months

    entity setup time

    Plus $5,000–$15,000 one-time setup and the cost of waiting to hire

Explore other guides that compare hiring models and markets for U.S. companies hiring in Canada.

View all comparisons Employer of Record (EOR) overview

Want Your Break-Even Number?

Share your headcount, provinces and timeline on a 15-minute call. We'll run both models with your numbers.

Book a 15-minute call