EOR vs Spanish Entity: A Full Cost Comparison for a 5-Person Team

Which EOR costs survive the move to your own entity?

The large number at the bottom of an EOR invoice is not the potential saving. It can include salaries, employer contributions, benefits, the provider’s service fee and other charges. Your own company still has to employ the same people.

Keep equivalent salaries, contributions and benefits on both sides. Isolate the service fee and any other charges that would actually stop. Then price the replacement work. A percentage fee, minimum commitment or negotiated discount needs its own calculation; a provider’s advertised starting price cannot replace your invoice.

For Spanish payroll, the employee’s Social Security contribution is deducted from remuneration, while the employer contributes separately. Do not add the employee’s deduction again on top of gross pay. The government’s guidance on Social Security contributions explains who pays and remits each part.

What does a five-person team cost under each route?

This worked example assumes five existing employees, each on €50,000 annual gross pay, staying for the full comparison period. Annual pay includes the entire agreed salary; the number of payroll instalments does not create extra annual salary in this model.

We allow €80,000 for employer contributions, equivalent to 32% of gross salaries, and €5,000 for the cash cost of benefits. The contribution allowance is a rounded planning input, not a Spanish statutory rate or an employee-level payroll calculation. Before using the model, replace it with calculations covering each person’s remuneration, contributory benefits, applicable bases and rates. The 2026 contribution rules distinguish contribution categories and bases, including occupational premiums; one percentage does not fit every employee.

All commercial amounts below are constructed assumptions, not quotes, observed client results or approved Evolutia fees. The team uses existing group equipment and has no incremental office lease. The comparison is in euros, before profit taxes, with no assumed irrecoverable VAT. It includes the employer and structure costs listed; additional business-specific items must be added where relevant.

Recurring saving with the entity: €12,600 a year, or €1,050 a month. That is about 3.4% of the modelled EOR total, even though it removes the entire €36,000 provider-fee line.

The €3,600 HQ allowance values additional internal capacity consumed by the entity. It is an economic cost, not necessarily another cash payment. Excluding that time, the entity’s modelled external spending is €354,800 a year. Keep both views visible if the investment decision and the treasury budget use different definitions of cost.

A payroll quote does not replace a company operating budget

The entity column assumes the listed functions are covered once. If a bundled quote already includes payroll, remove the separate payroll line. If it excludes annual accounts, registered-address provision, employer support or parent reporting that you need, add the missing work.

Preparing annual accounts is a statutory responsibility for a Spanish limited company’s directors under Article 253 of the Companies Act. Incorporation does not complete that continuing work. The broader cost of operating a Spanish subsidiary explains how employment, company administration and HQ effort fit together.

At Evolutia, Full Subsidiary includes bookkeeping and annual accounts. Tax & Employment is designed for companies whose finance team maintains the books; it excludes bookkeeping. Managed Payroll addresses employment administration within an existing structure. Compare the scope you need, including work retained by HQ, before comparing prices.

How much do setup and migration add?

In this example, switching requires €12,300 of additional economic cost. Formation is one part; changing the employing arrangement is another.

After twelve months of direct employment, total entity cost including the switch is €370,700, versus €371,000 for twelve months on the EOR. The saving is €300. Over twenty-four months after cutover, unchanged assumptions produce €729,100 for the entity including switching versus €742,000 for the EOR: €12,900 saved.

These are comparison windows after cutover, with all switching costs charged to the entity option. They are not a statement of when invoices are paid. The €1,000 internal transition allowance, like recurring HQ time, is an economic cost rather than necessarily extra cash expenditure.

Why the first budget year can still be more expensive

Suppose preparation takes three months and direct payroll starts at the beginning of month four. Those three months are a scenario, not a promised Spanish setup timeline. Within twelve months of deciding to move, you receive only nine months of the €1,050 monthly saving.

First decision-year saving = 9 × €1,050 − €12,300 = −€2,850.

The entity route costs €373,850 in that decision-year: €335,000 of employment, €9,000 of EOR fees for months 1–3, €17,550 of entity overhead for months 4–12, and €12,300 of switching costs. Staying costs €371,000. The €1,800 of extra entity costs before cutover is already inside switching costs; do not add it again.

The dependencies in setting up a Spanish company help explain why a signed deed and the first direct payroll are different milestones. Fix the savings start date around the actual migration plan and the EOR contract; how to move employees from an EOR to a Spanish entity covers the cutover decision.

What EOR fee makes an entity cheaper for five people?

With equal employment costs, the monthly calculation is:

Monthly economic saving = 5 × avoidable EOR fee per person − monthly entity overhead.

Simple payback = switching cost ÷ positive monthly saving.

At €1,950 monthly entity overhead, the ongoing break-even EOR fee is €390 per person per month. To recover €12,300 of switching within twelve months after cutover, it rises to €595: (€1,950 + €12,300 ÷ 12) ÷ 5. An entity becomes cheaper above those respective equality points, assuming unchanged scope.

Sensitivity scenarios, not a market price range. Entity overhead stays at €23,400 a year and switching at €12,300. A negative saving means the entity costs more.

For a three-month preparation period inside a twelve-month decision horizon, the fee equality point rises again, to about €663.33 per person per month, using (€1,950 + €12,300 ÷ 9) ÷ 5 and the same switching allowance. An earlier promise of “first-year savings” needs to say which year it means.

Planned hires need month-by-month treatment. Two additional people starting halfway through a twelve-month period add twelve employee-months between them. At €600, that creates €7,200 of additional EOR fees, before additional entity payroll, support and onboarding costs. It does not create a full year of seven-person savings.

Our broader guide to when an EOR stops making financial sense in Spain covers the general headcount formula.

What could invalidate the assumed savings?

A different employment package. The example assumes equivalent remuneration and benefits. If the contribution calculation, insurance cost or required employment terms differ, put that difference into the model. A saving created by silently reducing the employee package is a different decision.

A migration mechanism that costs more than expected. Where Article 44 of the Workers’ Statute applies, employment rights and obligations carry across. Whether a particular EOR exit qualifies depends on its facts. Do not budget on the assumption that a new employer resets seniority or removes accrued rights. Establish the lawful mechanism, necessary agreements or consents, communications, benefits and payroll handover before fixing a price or date. The EOR exit service describes the migration workstream alongside the economic decision.

A separate legal issue. Article 43 addresses unlawful worker assignment. Cost arithmetic does not establish whether your current arrangement is legally suitable. Equally, do not manufacture a fine or litigation saving to improve the entity case.

A shorter stay or broader business scope. This example assumes no additional office, recruitment, dismissal, dispute, statutory audit, immigration or specialist transfer-pricing project costs, and no entity closure during the period. Add differential costs where they apply. If Spain might close shortly, compare the EOR’s actual exit terms with employee and entity wind-down costs; do not assume either exit is cost-free. If you already need a Spanish entity for a separately established business reason, compare only the extra cost of employing the team there.

Cash needed to switch is a separate number

Share capital, intercompany funding and refundable EOR deposits are not automatically expenses. They affect cash available, including whether money is tied up, but should not be added to the operating costs they finance. Any financing charges or losses belong in the economic comparison where applicable.

Model the deposit’s contractual release date and the entity’s first payroll funding separately. The example does not assume an EOR refund arrives in time to fund direct employment. Likewise, it excludes profit-tax effects and tax cash timing: add irrecoverable tax costs where applicable, and review recoverable amounts and their timing separately. A lower annual cost does not guarantee a smaller cash requirement during the transition.

Is your five-person team ready for a personalised comparison?

At the model’s €600 fee, a durable team can recover the switch, but there is almost no first-year margin for missing costs. At €400, the recurring saving is too small to repay the same switch within a short planning horizon. Staying with the EOR can be the sensible financial result when the fee is low or the future team is uncertain, subject to the arrangement’s legal suitability.

To replace the assumptions with your numbers, request a free Personalised EOR Exit Model. Bring your Spanish headcount, salaries and actual EOR invoices, together with your expected hiring horizon. Evolutia uses those inputs for an economic comparison and break-even model you keep. This is a bounded financial diagnostic; contract review and migration execution are separate work. The next decision is whether moving deserves further investigation—not a commitment to leave.