When expanding into the Korean market, companies often face a crucial decision: use an Employer of Record (EOR) service or establish a local entity. Not only do global EOR providers frequently claim their service offers significant cost savings, but we consistently hear this misconception echoed by foreign companies who approach us directly seeking EOR services specifically to "save on costs." This widespread belief warrants closer examination.

The Purpose of This Analysis
Among the many factors to consider when choosing between a local Korean entity registration and an EOR service (which we'll explore in future articles), we believe cost should not be the deciding factor – especially since the common perception about which option is more economical is often inaccurate.

Let's examine the actual numbers:

EOR Services Cost in Korea:

  • Monthly fees: 8-12% of gross salary (some charge up to 15%)
  • Additional costs: Security deposits, administrative fees
  • For an employee with a US $5,000 monthly salary: US $400-$600 monthly EOR fee
  • Often includes hidden agency fees for workspace arrangements

Local Korean Entity Establishment Cost

  • One-time setup: US $3,500-US $4,200 (includes business and tax registration, bank account opening)
  • Monthly operations: US $400-$1,500 for accounting, bookkeeping and payroll
  • Per-employee cost: As low as US $20 per employee
  • Access to preferential local rates for co-working spaces

The Workspace Advantage
One often overlooked cost factor is office space. While both options require a physical workspace, local Korean entities frequently benefit from:

  • Lower rates at co-working spaces compared to what's available to EOR-hired employees
  • Direct relationships with space providers without agency markups (usually between 10% to 30% of original fees)
  • The ability to negotiate as a registered Korean business entity, not just for fees but also other office terms and benfits.

While this workspace cost would exist under either model, the local entity approach typically results in lower overall workspace expenses without the additional agency fees that often accompany EOR arrangements.

The Critical Insight: Fixed vs. Variable Costs
What many companies fail to recognize is that local entity operational costs are largely fixed regardless of employee count. The overhead expenses for bookkeeping and administration don't increase proportionally with each new hire.

In fact, the only element in these overhead expenses that scales with headcount is payroll processing – typically around US $20 per employee, a fraction of percentage-based EOR fees.

Real-World Cost Scenarios: The Numbers Don't Lie

Scenario 1: Tech Startup with 2 Developers

  • Two software developers earning US $6,000 monthly each
  • EOR costs: US $1,200/month (at 10% of salary)
  • Local entity costs: US $650/month + one-time US $4,000 setup
  • First-year comparison: EOR = US $14,400 vs. Local Korean Entity = US $11,800
  • Second-year savings: US $7,000+ by choosing local Korean entity setup

Scenario 2: Sales Office with 2 Representatives

  • Two sales representatives earning US $5,000 monthly each
  • EOR costs: US $1,000/month (at 10% of salary)
  • Local entity costs: US $650/month + one-time US $4,000 setup
  • First-year comparison: EOR = US $12,000 vs. Local Korean Entity = US $11,800
  • Second-year savings: US $8,000+ by choosing local Koran entity setup

Scenario 3: Marketing Team with 3 Specialists

  • Three marketing specialists earning US $4,500 monthly each
  • EOR costs: US $1,350/month (at 10% of salary)
  • Local entity costs: US $700/month + one-time US $4,000 setup
  • First-year comparison: EOR = US $16,200 vs. Local Korean Entity = US $12,400
  • Second-year savings: US $12,200+ by choosing local Korean entity setup

Scenario 4: Research Team with 3 Scientists

  • Three researchers earning US $7,000 monthly each
  • EOR costs: US $2,100/month (at 10% of salary)
  • Local entity costs: US $700/month + one-time US $4,000 setup
  • First-year comparison: EOR = US $25,200 vs. Local Korean Entity = US $12,400
  • Second-year savings: US $21,200+ by choosing local Korean entity setup

Scenario 5: Mixed Team with 3 Employees

  • One manager (US $8,000/month), one engineer (US $6,000/month), one administrator (US $3,500/month)
    EOR costs: US $1,750/month (at 10% of salary)
  • Local entity costs: US $700/month + one-time US $4,000 setup
  • First-year comparison: EOR = US $21,000 vs. Local Korean Entity = US $12,400
  • Second-year savings: US $16,600+ by choosing local Korean entity setup

The Compounding Cost Difference
As these scenarios clearly demonstrate, even with just 2-3 employees:

  • The break-even point usually occurs within the first year
  • Second-year savings are substantial, often exceeding US $10,000
  • Higher salary levels amplify the cost advantage of local Korean entity establishment
  • The percentage-based EOR model becomes increasingly expensive as your team grows

The Long-Term Financial Impact
For any company planning to maintain operations in Korea beyond just a few months, the cumulative cost difference can be substantial:

  • A three-employee operation using an EOR service could cost an additional US $9,600- US $21,200+ annually compared to maintaining a local entity
  • These savings increase proportionally with salary levels due to the percentage-based nature of EOR fees
  • The initial entity setup cost (US $3,500- US $4,200) is typically recovered within the first year

Beyond Cost Considerations
While this article focuses specifically on cost comparisons, we'll address other critical factors in future articles, including:

  • Regulatory compliance and licensing requirements
  • Labour regulations
  • Tax implications and permanent establishment concerns
  • Operational control and employment relationships
  • Brand presence and market perception

Making an Informed Decision
We encourage companies considering Korean market entry to request a detailed cost analysis based on their specific situation rather than accepting the common misconception that EOR services in Korea are automatically more economical.

KOISRA UP team provides both comprehensive EOR services and local Korean entity establishment support, allowing us to offer unbiased guidance based on your actual needs and circumstances rather than steering you toward a particular solution.