Shadow Payroll vs Setting Up an Entity: The Break-Even Headcount at 1, 3, 5, 10 and 25 Employees

A US company wants to build a team in Colombia.

It starts with one employee.

Then three.

Then five.

Eventually, the headcount reaches ten.

At some point, the finance team asks:

Would it cost less to establish a Colombian legal entity instead of continuing to pay for cross-border employment arrangements or an Employer of Record?

The usual response is that EOR is better for small teams and a local entity becomes cheaper as the workforce grows.

But how many employees make an entity financially worthwhile?

Five? Ten? Twenty-five?

And does the answer change if the company expects to operate for three years rather than one?

Ivvora built an original employer-cost model to answer those questions using Colombia as the reference country.

The study compares three possible workforce structures:

• A temporary cross-border assignment arrangement involving home payroll, host shadow payroll where required, tax assistance, and mobility costs.
• A locally employed workforce administered through a hypothetical legally viable EOR arrangement, using a published $599 monthly management-fee benchmark.
• Direct employment through a newly established Colombian legal entity.

The analysis calculates employee compensation, statutory employer contributions, mandatory benefits, setup expenses, payroll administration, annual compliance, tax advisory, and provider fees.

It also separates refundable deposits from operating expenses and tests how changing headcount affects the results.

Under the study’s assumptions, a Colombian entity first becomes the lowest-cost modeled structure at nine employees over one year, or five employees over three years.

At 25 employees, the modeled entity saves approximately $108,200 against the EOR pricing benchmark in Year 1.

Over three years, that difference increases to approximately $389,600.

These are synthetic model results, not observed market averages or government-prescribed company-formation thresholds.

A critical legal qualification also applies: Colombia restricts unlawful third-party labor intermediation, and an EOR-branded service does not automatically establish a lawful long-term employment arrangement. The EOR column is therefore a conditional financial comparator, not an assertion that the described model is legally available for every Colombian team.

Similarly, continuing foreign employment with shadow payroll is not automatically a compliant alternative to locally employing a permanent Colombian workforce.

The research answers the economic question while keeping legal feasibility as a separate decision.

Executive Findings: At What Headcount Does an Entity Become Cheaper?

The model uses employees earning an identical $48,000 annual gross salary.

For the locally employed options, the study includes ordinary Colombian employer contributions and mandatory benefits.

The foreign assignment option retains a US employer and adds specified mobility and cross-border compliance costs.

Table 1. Year-1 employer cost by workforce size

Employees	Shadow/mobility	EOR benchmark	Own Colombian entity	Lowest modeled cost
1	$84,672	$72,099	$125,371	EOR
3	$228,016	$216,296	$256,112	EOR
5	$371,360	$360,493	$386,853	EOR
10	$729,720	$720,986	$713,706	Entity
25	$1,804,800	$1,802,464	$1,694,264	Entity

Source: Ivvora original synthetic employer-cost model, October 2026.

For the Year-1 comparison, the first whole-number headcount at which the entity is cheaper than both alternatives is nine employees.

At eight employees, the entity is cheaper than the modeled shadow/mobility arrangement but remains more expensive than the EOR financial benchmark.

At nine employees, its cumulative advantage over EOR is only $552.

By 25 employees, the advantage is substantially larger.

Table 2. Three-year employer cost by workforce size

Employees	Shadow/mobility	EOR benchmark	Own Colombian entity	Lowest modeled cost
1	$235,216	$215,296	$286,112	EOR
3	$659,648	$645,887	$678,335	EOR
5	$1,084,080	$1,076,478	$1,070,558	Entity
10	$2,145,160	$2,152,957	$2,051,117	Entity
25	$5,328,400	$5,382,392	$4,992,792	Entity

The three-year comparison produces an earlier crossover.

At five employees, the entity becomes the cheapest modeled arrangement.

That happens because the initial entity setup investment is spread over three years, while per-employee EOR service fees continue accumulating.

The findings can be summarized as follows:

1. One to three employees: An EOR-style fee structure has the lowest modeled financial cost, subject to legal feasibility.
2. Five employees: EOR remains cheaper over one year, but the entity becomes marginally cheaper over three years.
3. Nine employees: The entity overtakes both alternatives on Year-1 total cost.
4. Ten employees: The entity is already cheaper within the first year under the base assumptions.
5. Twenty-five employees: The entity’s cumulative cost advantage is significant, but its operational responsibilities must also be funded.

The more important finding is that the financially rational headcount depends on the planned duration of the workforce.

A company expecting ten employees for twelve months has a different decision from one expecting five employees for three years.

1. What the Study Actually Compares

Shadow payroll, EOR, and direct local employment are not merely three payroll software products.

They can represent fundamentally different employment arrangements.

Option A. Home payroll plus shadow payroll and mobility

The employee remains employed by the foreign company under an otherwise legally viable temporary assignment.

The employee continues to receive salary through home payroll.

The employer incurs applicable home-country contributions, host shadow payroll administration where required, cross-border tax preparation, and mobility expenses.

This is a temporary assignment cost model.

Shadow payroll by itself does not create legal authorization to employ permanent workers in Colombia.

Option B. Employer of Record

A service provider acts as the local employer under the proposed arrangement and administers the employee’s payroll, benefits, and associated obligations.

The client pays the employee’s employment costs and a recurring management fee.

For this study, Ivvora uses Deel’s published $599 monthly EOR fee as a commercial benchmark.

The study does not assume that the advertised arrangement is legally permissible for all forms of long-term Colombian employment.

That issue is addressed separately.

Option C. The company’s own Colombian entity

The foreign company establishes a Colombian subsidiary, such as a qualifying Sociedad por Acciones Simplificada (S.A.S.).

The new entity directly employs the workforce.

The company funds incorporation, payroll infrastructure, accounting, regulatory compliance, governance, and ongoing administration.

The entity pays applicable Colombian employer contributions and employment benefits.

Table 3. Structural comparison

Dimension	Shadow/mobility	EOR	Own entity
Existing foreign employer	Retained	Usually replaced by local employing arrangement	Local entity employs worker
Home cash payroll	Continues	Generally not primary payroll	Generally not primary payroll
Local employment	Depends on facts	Through provider, if lawful	Direct
Upfront costs	Assignment setup	Provider onboarding	Entity establishment
Recurring administration	Cross-border payroll and tax	Provider fee	In-house or outsourced payroll
Mobility costs	Included in model	Excluded	Excluded
Local statutory benefits	Depends on applicable law	Included in local employment model	Included
Corporate governance	Foreign employer’s existing obligations	Primarily provider-side structure, with client exposure depending on law and contract	Direct entity responsibility
Suitable for permanent team	Not automatically	Subject to substantial Colombian legal restrictions	Generally viable if properly established and compliant

The financial comparison assumes the employer can obtain legally appropriate services under the facts of each scenario.

Where a structure is not legally available, its cost curve is a hypothetical benchmark rather than an actionable option.

2. Why Colombia Is a Useful Market for the Study

Colombia has identifiable statutory employment contributions, benefits, and company-registration rules.

This makes it possible to separate the cost of employing workers from the cost of operating the employing entity.

The study uses published 2026 payroll rules together with clearly disclosed commercial budgeting assumptions.

Three characteristics are particularly important.

First, employer contributions vary depending on whether the employer qualifies for specified statutory exemptions.

Second, local employment can involve recurring mandatory benefits beyond ordinary gross salary.

Third, establishing a company involves more than paying the government registration charge.

These three factors create a useful financial experiment.

An entity may have higher fixed expenses but lower marginal payroll administration costs.

An EOR may have lower initial operating complexity but charge a recurring fee for each worker.

A foreign assignment arrangement may avoid some local employment expenses under qualifying conditions while generating additional mobility and cross-border tax costs.

The break-even depends on how those differences accumulate.

3. The Employee Dataset: Same Gross Salary, Different Employer Cost

The experiment assumes employees with identical annual gross compensation.

Table 4. Fixed employee assumptions

Variable	Assumption
Country of work	Colombia
Annual gross salary per employee	$48,000
Monthly gross salary	$4,000
Annual work period	12 months
Three-year comparison	36 months
Exchange rate	COP 4,000 per USD
Monthly salary in COP	COP 16,000,000
Salary structure for local employment	Ordinary salary
Occupational risk	Illustrative Class I
Employee turnover	0%
Annual wage increases	0%
Currency appreciation/depreciation	0%
Headcount	Constant during each primary scenario

The exchange rate is a hypothetical analytical input rather than a historical or forward currency forecast.

All workers are assumed to earn the same gross compensation across the three arrangements.

This controls the effect of salary differences.

It does not establish equal net income, equal benefits, equivalent pension outcomes, or equal employee purchasing power.

The shadow/mobility employees are modeled as existing US-covered assignees.

The EOR and entity employees are modeled as locally employed workers.

Those differences in employment structure are important and should not be concealed.

For an actual workforce decision, the employer must determine whether the same employees can lawfully and voluntarily transition between arrangements.

4. Colombia’s 2026 Employer Contribution Calculation

For local employment, Ivvora begins with Colombia’s statutory contribution framework.

The 2026 monthly minimum wage under Decree 159 of 2026 is COP 1,750,905, subject to the decree’s temporary legal framework.

Ten monthly minimum wages equal:

COP 1,750,905 × 10 = COP 17,509,050

The modeled employee earns COP 16,000,000 per month.

That is below ten monthly minimum wages.

Colombia’s Tax Statute, Article 114-1, provides exemptions from specified employer health, SENA, and ICBF contributions for qualifying employers in respect of workers individually earning less than ten monthly minimum wages.

The study assumes both hypothetical local employing entities qualify for that exemption.

Sources:

Colombia, Decree 159 of 2026

DIAN, Tax Statute Article 114-1

Table 5. Employer contributions for the modeled local employee

Contribution	Ordinary employer rate	Modeled rate after assumed exemption
Health	8.5%	0%
Pension	12.0%	12.0%
Occupational risks, Class I	0.522%	0.522%
Family compensation fund	4.0%	4.0%
SENA	2.0%	0%
ICBF	3.0%	0%
Total	30.022%	16.522%

The rates assume the relevant salary is the contribution base and no other contribution limitation or exemption changes the calculation.

The actual occupational-risk rate depends on the job’s classification.

The EOR’s entitlement to Article 114-1 relief must be verified independently. A provider’s marketing description does not establish its tax status.

Employer contribution calculation

Annual salary:

$48,000

Applicable modeled employer rate:

16.522%

Annual employer contributions:

$48,000 × 16.522% = $7,930.56

Contribution breakdown

Contribution	Annual employer amount
Pension	$5,760
Occupational risks	$251
Family compensation fund	$1,920
Total	$7,931

Source: Ivvora calculation using official contribution rates and the stated exemption assumptions.

The rates are supported by Colombia’s UGPP published contribution guidance.

UGPP, Employer Contribution Rates

5. Mandatory Colombian Benefits: Another $8,480 per Employee

Local employer cost does not stop at salary and social contributions.

For the modeled ordinary salary arrangement, the study includes annualized provisions for:

• Prima de servicios.
• Cesantías.
• Interest on cesantías.

These benefits have their own legal formulas and payment dates.

Table 6. Annualized Colombian benefit provision

Benefit	Budgeting calculation	Annual provision
Prima de servicios	One month’s salary	$4,000
Cesantías	One month’s salary	$4,000
Interest on cesantías	12% of full-year cesantías	$480
Total		$8,480

The model assumes a complete year of service and a constant ordinary salary.

The interest calculation is annualized. Actual partial-year settlements use the legally applicable formula and service period.

The employee’s paid annual vacation entitlement remains a separate consideration.

In the primary model, salary already includes compensation paid while vacation is taken.

The model does not add a second full vacation salary payment on top of the same normal wages.

Unused vacation liabilities, end-of-employment settlement costs, and exceptional benefits are excluded from the primary comparison and must be assessed where relevant.

Source: Colombian Ministry of Justice, Employment Benefits and Settlement.

Fully loaded local employment cost before provider administration

Component	Annual cost
Gross salary	$48,000
Employer social contributions	$7,931
Prima, cesantías and interest	$8,480
Employment subtotal	$64,411

The underlying unrounded amount is $64,410.56.

That amount is used in both the EOR and direct-entity comparisons.

It avoids giving one local employment arrangement an artificial advantage through missing statutory employment costs.

6. Option A: The Shadow Payroll and Mobility Cost Model

For the foreign-assignment scenario, the employee remains on the payroll of a US employer.

The company funds normal salary and applicable US employer FICA.

It also incurs shadow payroll administration, tax advisory, mobility, and tax equalization expenses.

The model assumes the specific assignment can lawfully continue under its foreign employer structure and that no additional Colombian employer contribution or statutory-benefit liability applies.

That is a conditional assumption, not a rule that foreign employers are exempt from Colombian employment obligations.

Table 7. Shadow/mobility cost per employee

Cost component	Annual amount
Home-country gross salary	$48,000
US employer FICA, 7.65%	$3,672
Host shadow payroll administration, $450/month	$5,400
Housing and assignment mobility, $500/month	$6,000
Employer tax equalization reserve, $500/month	$6,000
Employee tax preparation and advisory	$1,200
Recurring annual cost per employee	$70,272

The model separately assumes:

• $1,400 initial employee assignment onboarding per person.
• $8,000 shared initial cross-border compliance setup for the employer.
• $5,000 annual shared compliance and tax oversight.

All nonstatutory amounts are hypothetical employer-budget assumptions.

The $6,000 annual tax equalization reserve is a commercial planning figure, not an assessed employee tax liability. It is assumed to include its associated employer-funded tax and contribution effects for modeling simplicity.

The US employer FICA calculation uses the 2026 ordinary 7.65% employer rate and assumes applicable wages below the Social Security wage base.

Source: IRS, Social Security and Medicare for Americans Employed Abroad.

The critical limitation

This model is not a strategy for indefinitely treating Colombian permanent employees as foreign workers.

For a real temporary assignment, the company must assess local employment, payroll, immigration, social security, tax residence, and corporate-tax obligations.

The 25-person and three-year shadow scenarios are financial stress tests.

They should not be interpreted as a conclusion that 25 employees can lawfully work permanently in Colombia under unchanged US employment contracts.

7. Option B: EOR Employer Cost

The EOR financial model uses the same $48,000 annual gross employee salary as the direct local entity.

It also uses the same modeled Colombian employer contributions and statutory benefits.

For the service component, Ivvora uses a publicly advertised EOR fee.

Deel lists a monthly EOR service fee of $599 per employee.

Remote separately publishes a standard $699 monthly EOR management fee, providing a higher-fee sensitivity later in the study.

Sources:

Deel, Official Pricing

Remote, EOR Management Fees

These are public price references, not verified Colombia-specific quotes for the workers in this model.

Table 8. EOR annual cost per employee

Component	Annual amount
Gross salary	$48,000
Colombian employer contributions	$7,931
Colombian statutory benefit provision	$8,480
EOR management fee, $599 × 12	$7,188
Recurring annual EOR cost	$71,599

The underlying unrounded recurring cost is $71,598.56.

The model adds a hypothetical $500 onboarding expense per employee.

That onboarding amount is not presented as an actual Deel or Remote charge.

The model assumes the EOR service fee includes the ordinary payroll and administration services specified in the modeled package, so it does not add the same administrative services again.

The EOR legal qualification

Colombia’s labor framework does not automatically recognize every foreign-branded EOR arrangement as a legally valid form of permanent labor intermediation.

Law 2466 of 2025 and Decree 581 of 2026 strengthen restrictions and enforcement concerning unlawful labor outsourcing and intermediary arrangements.

A provider’s actual structure, employer independence, worker supervision, authorized activities, and the nature and duration of the work matter.

The model therefore treats EOR as a conditional pricing benchmark.

For an actual company, counsel must establish whether a particular EOR provider’s proposed employment structure is lawful for the planned work.

Sources:

Colombia, Law 2466 of 2025

Colombia, Decree 581 of 2026

A cost advantage does not make an otherwise impermissible employment structure viable.

8. Option C: What Does Establishing a Colombian Entity Actually Cost?

An entity involves fixed costs that do not scale directly with every additional employee.

For this experiment, the company establishes an operational Colombian S.A.S. capable of employing and administering the modeled workforce.

Colombia’s official business-registration portal explains that company registration can involve Chamber of Commerce registration, applicable registration tax, asset-based fees, and associated registration requirements.

The specific government charges depend on the company type, registered capital, assets, and location.

Source: Colombia’s Official Business Creation Portal.

But paying the official registration fees is not the same as building an operational employing entity.

The employer may also need legal structuring, tax registration, payroll systems, accounting arrangements, a local legal representative, banking, contracts, and employment compliance.

Ivvora therefore uses a hypothetical fully operational setup budget rather than confusing the total with government incorporation fees.

Table 9. Illustrative entity launch budget

Setup component	Modeled amount
Corporate legal structuring and formation support	$12,000
Tax, accounting and regulatory implementation	$8,000
Payroll and employment systems implementation	$6,000
Banking and treasury setup	$5,000
Employment contracts, HR policies and benefits design	$6,000
Corporate administration and vendor onboarding	$4,000
Implementation contingency	$4,000
Total fully operational launch budget	$45,000

These values are synthetic professional-service and operational budgets.

They are not the statutory cost of registering an S.A.S.

A simpler company may be established and made operational for substantially less.

A complex foreign-owned business may incur more.

The model deliberately assumes that the entity has enough administrative capability to employ the workforce rather than merely existing on paper.

Annual entity compliance budget

After formation, the company incurs recurring corporate administration costs.

Table 10. Illustrative annual entity overhead

Annual expense	Assumed cost
Corporate accounting and bookkeeping	$6,000
Tax filings and statutory compliance	$3,500
Corporate governance and legal representation support	$3,000
Employer compliance and periodic legal advisory	$2,500
Annual corporate overhead	$15,000

The model also adds $80 per employee per month for direct payroll administration.

That equals $960 per employee annually.

These costs are assumed to provide the stated corporate and payroll services without overlap.

The recurring entity costs exclude income tax on corporate profits, financing costs, office premises, equipment, specialized regulatory licenses, and unmodeled local management headcount.

They are not an estimate of the total operating expenses of every Colombian company.

9. Direct Entity Employment Cost Per Worker

The entity pays the same locally modeled compensation and benefits as the EOR financial scenario.

The only per-employee difference is the administration method.

Table 11. Annual entity employment cost per worker

Component	Annual cost
Gross salary	$48,000
Employer contributions	$7,931
Statutory benefits provision	$8,480
Direct payroll administration, $80/month	$960
Recurring annual cost per employee	$65,371

Underlying unrounded amount: $65,370.56.

The entity also incurs the fixed $45,000 launch cost and $15,000 annual compliance budget.

This creates a familiar fixed-versus-variable cost problem.

The entity’s marginal annual cost per employee is lower than the EOR financial benchmark.

But the entity begins with a substantial fixed-cost disadvantage.

The question is how many employees are needed to recover that disadvantage.

10. One Employee: Why an Entity Is Expensive

The company plans to employ one worker.

Table 12. Year-1 cost for one employee

Cost category	Shadow/mobility	EOR	Entity
Salary and modeled employer/benefit costs	$51,672	$64,411	$64,411
Mobility and tax equalization	$12,000	$0	$0
Payroll, provider and employee tax advisory	$6,600	$7,188	$960
Per-employee onboarding	$1,400	$500	$0
Shared setup and annual compliance	$13,000	$0	$60,000
Total Year 1	$84,672	$72,099	$125,371

The first row differs between shadow and local employment because the applicable employer contribution and statutory benefit assumptions differ.

At one employee, the entity’s fixed costs dominate the calculation.

The entity costs approximately $53,272 more than the EOR financial benchmark during Year 1.

Over three years, the entity remains more expensive.

Three-year comparison

Model	Three-year total
Shadow/mobility	$235,216
EOR	$215,296
Entity	$286,112

The EOR financial benchmark has the lowest modeled cost.

However, the company still needs a legally valid employment arrangement.

For a permanent Colombian role, it cannot automatically select EOR merely because its illustrative cost is lower.

11. Three Employees: Fixed Entity Costs Still Dominate

Now the company has three workers.

Each receives the same $48,000 annual gross salary.

The entity’s $45,000 launch budget is spread across three employees instead of one.

That improves its per-person economics.

But it is not enough to make the entity cheapest.

Table 13. Three-employee comparison

Model	Year 1	Three years
Shadow/mobility	$228,016	$659,648
EOR	$216,296	$645,887
Entity	$256,112	$678,335

At three employees, the EOR cost benchmark is $39,816 below the entity’s Year-1 total.

Over three years, that advantage narrows to approximately $32,448.

The fixed-cost disadvantage is being recovered over time, but not quickly enough to make the entity cheaper at this headcount.

For a company with only three workers and no broader Colombian business operations, the cost of forming a fully operational local entity may be difficult to justify on payroll savings alone.

Other business reasons may still justify establishing the entity, including contracts, revenue generation, local operations, intellectual property, regulatory requirements, or long-term strategic presence.

Those benefits are not valued in the payroll-only model.

12. Five Employees: The Three-Year Crossover Appears

At five employees, the result becomes more interesting.

For a one-year project, the entity is still more expensive.

For a three-year workforce commitment, the entity becomes marginally cheaper.

Table 14. Five-employee comparison

Model	Year 1	Three years
Shadow/mobility	$371,360	$1,084,080
EOR	$360,493	$1,076,478
Entity	$386,853	$1,070,558

Year-1 result

The entity costs approximately $26,360 more than EOR.

It has not had enough time to recover the setup investment.

Three-year result

The entity costs approximately $5,920 less than EOR.

It is also $13,522 cheaper than the modeled shadow/mobility arrangement.

Five employees is the first complete headcount at which the entity becomes the lowest-cost modeled option over three years.

This is a narrow financial advantage.

A modest change in entity overhead, payroll pricing, salary, turnover, or local employment obligations could reverse the outcome.

The result should therefore be treated as an economic threshold requiring sensitivity testing rather than an automatic instruction to incorporate.

13. Ten Employees: The Entity Wins Within the First Year

The company’s Colombian workforce expands to ten employees.

The entity’s setup and corporate overhead now spread across ten salaries.

The EOR management fee, by contrast, continues to scale with headcount.

Table 15. Ten-employee comparison

Model	Year 1	Three years
Shadow/mobility	$729,720	$2,145,160
EOR	$720,986	$2,152,957
Entity	$713,706	$2,051,117

The entity is now cheapest in Year 1.

Year-1 entity savings against EOR:

$720,985.60 − $713,705.60 = $7,280

Three-year entity savings against EOR:

$2,152,956.80 − $2,051,116.80 = $101,840

Three-year entity savings against shadow/mobility:

$2,145,160 − $2,051,116.80 = $94,043

The cost advantage becomes more meaningful over time.

The company is no longer evaluating a small number of international workers.

It is beginning to operate a sustained local workforce.

At that point, corporate infrastructure may serve business purposes beyond payroll, and the company’s willingness to manage a local legal entity may increase.

Those strategic benefits remain outside the financial calculations.

14. Twenty-Five Employees: Entity Costs Separate Substantially

At 25 employees, the financial model shows a larger advantage for direct local employment.

Table 16. Twenty-five-employee comparison

Model	Year 1	Three years
Shadow/mobility	$1,804,800	$5,328,400
EOR	$1,802,464	$5,382,392
Entity	$1,694,264	$4,992,792

Year-1 savings

Entity versus EOR:

$1,802,464 − $1,694,264 = $108,200

Entity versus shadow/mobility:

$1,804,800 − $1,694,264 = $110,536

Three-year savings

Entity versus EOR:

$5,382,392 − $4,992,792 = $389,600

Entity versus shadow/mobility:

$5,328,400 − $4,992,792 = $335,608

The entity’s three-year EOR fee advantage is now close to $390,000.

That saving is conditional on the modeled salaries, employer contributions, benefit structure, entity overhead and provider fees.

It is also conditional on comparing legally viable structures.

For an ordinary 25-person permanent Colombian workforce, the foreign-assignment and EOR arrangements require particularly careful legal scrutiny.

The economic result does not establish that either structure is available as a substitute for direct employment.

15. The Exact Year-1 Entity Break-Even: Nine Employees

The EOR and entity models use the same annual gross salary, statutory employer contributions, and benefit provision.

That means these costs cancel out when solving their financial crossover.

The remaining difference is straightforward.

The entity has higher fixed costs.

The EOR has higher per-worker management costs.

Entity fixed costs in Year 1

Launch budget:

$45,000

Annual corporate compliance:

$15,000

Total fixed cost:

$60,000

Entity annual payroll administration per employee

$80 × 12 = $960

EOR annual provider fee

$599 × 12 = $7,188

The entity saves:

$7,188 − $960 = $6,228 per worker annually

The EOR model also assumes a $500 one-time onboarding expense per worker, which direct entity employment does not incur in this comparison.

Year-1 per-worker financial advantage of entity:

$6,228 + $500 = $6,728

Break-even headcount:

$60,000 ÷ $6,728 = 8.92 employees

Since companies cannot employ 0.92 of a worker in this headcount calculation, round up to the next whole employee.

Year-1 break-even: 9 employees.

Table 17. Check the exact Year-1 crossover

Headcount	EOR total	Entity total	Cheaper
7	$504,690	$517,594	EOR
8	$576,788	$582,964	EOR
9	$648,887	$648,335	Entity
10	$720,986	$713,706	Entity
11	$793,084	$779,076	Entity

At eight employees, EOR remains $6,176 cheaper.

At nine employees, the entity becomes $552 cheaper.

This is the exact mathematical boundary under the base assumptions.

16. The Three-Year Entity Break-Even: Five Employees

A longer operating horizon changes the equation.

The company pays the entity setup cost once.

It pays annual corporate overhead in each of the three years.

The EOR, meanwhile, continues charging its management fee for every employee every month.

Entity fixed costs over three years

Initial launch:

$45,000

Annual compliance:

3 × $15,000 = $45,000

Total:

$90,000

Three-year recurring EOR provider fees per employee

36 × $599 = $21,564

Three-year direct entity payroll administration

36 × $80 = $2,880

The entity’s recurring administration advantage is:

$21,564 − $2,880 = $18,684 per employee

Add the modeled $500 EOR onboarding fee:

$18,684 + $500 = $19,184

Calculate the headcount crossover

$90,000 ÷ $19,184 = 4.69 employees

Round up:

Three-year break-even: 5 employees.

Table 18. Check the three-year crossover

Headcount	EOR total	Entity total	Cheaper
3	$645,887	$678,335	EOR
4	$861,183	$874,447	EOR
5	$1,076,478	$1,070,558	Entity
6	$1,291,774	$1,266,670	Entity
10	$2,152,957	$2,051,117	Entity

At four employees, EOR is approximately $13,264 cheaper.

At five, the entity is approximately $5,920 cheaper.

That is why the three-year crossover occurs at five employees rather than nine.

17. The Three-Way Break-Even: Does Shadow Payroll Change the Answer?

The preceding equations compare entity and EOR costs.

But the original decision also includes the shadow/mobility model.

The company needs the entity to be cheaper than both alternatives before calling it the lowest-cost modeled arrangement.

Year-1 entity versus shadow payroll

The entity’s fixed cost is $60,000.

Shadow payroll has $13,000 in shared setup and annual overhead.

The entity therefore begins with an additional fixed-cost burden of:

$60,000 − $13,000 = $47,000

Annual recurring cost per employee:

Shadow/mobility = $70,272

Entity = $65,370.56

Recurring advantage:

$4,901.44 per employee

The shadow arrangement also includes $1,400 per-worker onboarding.

That creates a Year-1 entity advantage of:

$4,901.44 + $1,400 = $6,301.44 per employee

Break-even:

$47,000 ÷ $6,301.44 = 7.46 employees

Rounded up:

Entity beats shadow/mobility at eight employees in Year 1.

But at eight employees, EOR remains cheaper than the entity.

Consequently, the overall three-way crossover is nine employees.

Three-year entity versus shadow payroll

Entity fixed costs:

$90,000

Shadow shared costs:

$8,000 initial + $15,000 over three years = $23,000

Difference:

$67,000

Three-year per-worker recurring advantage:

3 × $4,901.44 = $14,704.32

Add avoided shadow onboarding:

$14,704.32 + $1,400 = $16,104.32

Break-even:

$67,000 ÷ $16,104.32 = 4.16 employees

Rounded up:

Entity beats shadow/mobility at five employees over three years.

The entity also beats the EOR benchmark at five employees over three years.

This confirms the overall modeled break-even.

Table 19. Exact headcount crossover summary

Comparison	Year-1 crossover	Three-year crossover
Entity versus EOR	9 employees	5 employees
Entity versus shadow/mobility	8 employees	5 employees
Entity cheaper than both	9 employees	5 employees

All crossovers are financial outcomes under the study’s stated assumptions, not legal hiring thresholds.

18. Provider Fee Sensitivity: The Break-Even Moves When EOR Pricing Changes

The primary model uses a $599 monthly EOR management fee.

But provider pricing is not fixed across contracts.

The actual fee can depend on the country, package, employee count, commercial negotiation, and billing terms.

To measure the effect, Ivvora recalculates the entity crossover at several monthly EOR prices.

All other assumptions remain unchanged.

Table 20. Entity break-even at alternative EOR fees

EOR monthly fee	Year-1 entity break-even	Three-year entity break-even
$399	14 employees	8 employees
$499	11 employees	6 employees
$599	9 employees	5 employees
$699	8 employees	4 employees
$899	6 employees	4 employees

The $599 and $699 amounts correspond to published provider pricing references.

The $399, $499, and $899 rows are hypothetical commercial sensitivities.

At $399 monthly, EOR fees accumulate more slowly.

The entity must support fourteen employees before recovering its fixed costs within Year 1.

At $699 monthly, the entity’s recurring advantage is larger.

The Year-1 crossover moves to eight employees.

A $300 difference in monthly EOR fees changes the modeled Year-1 crossover from fourteen employees to eight.

That is a significant result for procurement teams.

An entity break-even estimate that assumes one generic EOR management fee can materially misstate the headcount at which direct employment becomes financially advantageous.

19. What If Entity Compliance Costs Are Higher Than Expected?

An entity’s ongoing overhead may be higher than the base $15,000 annual assumption.

The company may need more extensive accounting, transfer-pricing documentation, legal advisory, regulatory reporting, or governance support.

For some businesses, those expenses can materially change the economics.

Ivvora tests alternative entity budgets.

Table 21. Entity setup and compliance sensitivity

Entity setup	Annual corporate overhead	Year-1 entity/EOR crossover	Three-year crossover
$30,000	$10,000	6 employees	4 employees
$45,000	$15,000	9 employees	5 employees
$45,000	$30,000	12 employees	8 employees
$75,000	$15,000	14 employees	7 employees

The EOR fee remains $599 per employee per month in every scenario.

The table shows how much the break-even depends on actual entity operating requirements.

At $45,000 setup and $30,000 annual compliance, the Year-1 crossover rises to twelve employees.

At $75,000 setup and $15,000 annual overhead, it rises to fourteen.

A company should therefore obtain a detailed entity setup and operating budget rather than use a generic incorporation-cost estimate.

In particular, government registration fees should not be substituted for the total cost of establishing and administering an operational subsidiary.

20. Colombia’s Ten-Minimum-Wage Threshold Can Change the Employment Cost Stack

The model’s $48,000 annual salary was selected deliberately.

At COP 4,000 per dollar, monthly compensation is COP 16,000,000.

That is below the 2026 ten-minimum-wage threshold of COP 17,509,050.

For the study’s qualifying local employers, Article 114-1 exemptions are therefore assumed to apply.

But a salary increase can move the employee above the threshold.

The modeled annual salary equivalent of ten minimum wages

COP 17,509,050 per month ÷ 4,000 = $4,377.2625 monthly

Annual equivalent:

$4,377.2625 × 12 = $52,527.15

Under the fixed exchange-rate assumption, an employee earning around $52,527 annually reaches the ten-minimum-wage threshold.

The exemption applies to qualifying employees earning less than ten minimum wages, not at or above that level.

The statutory contribution difference

Below the threshold, where the specified exemption applies:

Modeled employer contribution rate = 16.522%

At or above the threshold, assuming the full ordinary contribution stack applies:

Modeled employer contribution rate = 30.022%

Difference:

30.022% − 16.522% = 13.5 percentage points

At annual gross compensation of approximately $52,527:

$52,527 × 13.5% = approximately $7,091

That is the modeled annual employer contribution difference attributable to losing the specified exemptions at that compensation level.

It is not a $7,091 government penalty.

It represents employer health, SENA, and ICBF contributions that were excluded under the qualifying lower-salary scenario.

What happens to the entity crossover?

If the EOR and direct entity both qualify for identical contributions and benefit treatment, their common statutory costs cancel when solving the provider-fee-versus-entity-overhead crossover.

The nine-employee Year-1 EOR/entity crossover may therefore remain unchanged even when both sides have higher statutory contributions.

However, the total employment budget increases.

The comparison against the US-covered shadow/mobility scenario can change significantly.

If one local employing structure qualifies for an exemption and another does not, even the EOR/entity crossover can change.

This is a major reason to verify employer-specific contribution eligibility instead of applying a single Colombia payroll percentage to every provider and entity.

21. The EOR Deposit: Working Capital Is Not the Same as Expense

An EOR provider may require a refundable security deposit.

That deposit can be material for a larger workforce.

But it should not automatically be added to operating expenses.

Deel’s published deposit guidance describes a standard deposit generally ranging between one and one-and-a-half times the monthly charges, including compensation, employer costs, allowances, and management fees, subject to contract-specific requirements.

Source: Deel, EOR Deposit Calculations.

For a simplified sensitivity, assume a deposit equal to 1.25 times the modeled average monthly EOR charge.

Annual EOR run rate per worker:

$71,598.56

Average monthly run rate:

$71,598.56 ÷ 12 = $5,966.55

Modeled deposit:

$5,966.55 × 1.25 = $7,458 per employee

Table 22. EOR working-capital sensitivity

Headcount	Illustrative refundable deposit
1	$7,458
3	$22,375
5	$37,291
10	$74,582
25	$186,455

The actual deposit and its calculation depend on the provider agreement.

Some charges may be assessed on a different basis than an averaged monthly statutory benefit provision.

These amounts are therefore working-capital sensitivities, not confirmed invoices.

At 25 employees, approximately $186,455 could be tied up under the modeled deposit structure.

That is not an additional $186,455 expense if the deposit is fully refundable.

It is cash that may be unavailable for other business uses while held by the provider.

A complete financing model could calculate the economic cost of that restricted cash using the company’s cost of capital and expected refund timing.

This is a separate financial dimension from the headcount break-even.

22. Five Employees Today, Ten Next Year: The Growth-Path Problem

The main study assumes headcount remains constant.

Real businesses rarely grow in perfectly flat lines.

A company may start with three employees, increase to five, and later reach ten.

The entity break-even should therefore reflect employee-months or employee-years, not just the number of people employed on the last day of the forecast.

Consider this alternative hiring plan:

• Year 1: 3 employees.
• Year 2: 5 employees.
• Year 3: 10 employees.

Assume every employee works for their full respective year and all workers remain with the company after being hired.

That produces:

3 + 5 + 10 = 18 employee-years

The company has onboarded ten unique workers by the end of Year 3.

EOR calculation

Annual EOR cost per active employee:

$71,598.56

Eighteen employee-years:

18 × $71,598.56 = $1,288,774.08

Ten employee onboarding allowances:

10 × $500 = $5,000

Total EOR financial benchmark = $1,293,774

Entity calculation

Annual direct entity employment cost:

$65,370.56

Eighteen employee-years:

18 × $65,370.56 = $1,176,670.08

Entity setup:

$45,000

Three years of compliance:

$45,000

Total entity cost = $1,266,670

Growth-path saving

$1,293,774 − $1,266,670 = $27,104

The entity becomes financially advantageous over the full three-year growth plan.

Yet in Year 1, with only three employees, it is considerably more expensive.

That creates a strategic decision.

A company confident in its planned growth may choose to absorb higher initial costs to achieve lower cumulative spending.

A company uncertain about whether the workforce will expand may place more value on avoiding a large fixed investment.

Both decisions can be rational under different business expectations.

23. A Permanent Team Is Not the Same as a Temporary Assignment

The shadow payroll model becomes less comparable as headcount and duration increase.

This is a legal and operational limitation, not simply a pricing issue.

Shadow payroll may be appropriate where an employee remains legally employed abroad while performing duties in another country and the relevant reporting or withholding requirements are met.

But a company cannot assume it can indefinitely employ a permanent Colombian workforce through foreign contracts merely by operating a shadow payroll.

At 25 employees, the employer should separately examine:

• Who is the actual employer.
• Where the employees perform their duties.
• Whether the work is temporary or permanent.
• Whether Colombian labor protections apply.
• Whether social-security and payroll contributions are owed.
• Whether the company has created a taxable business presence.
• Whether relevant immigration and employment registrations are satisfied.
• Whether the arrangement requires direct local employment.

The model’s shadow/mobility totals are useful for evaluating the cost of continuing a genuine temporary-assignment program.

They are not a recommendation to use that model for 25 permanent workers over three years.

This distinction is particularly important when presenting the article to founders who may not yet understand the phrase shadow payroll.

A payroll-reporting tool does not itself establish the right to employ workers under a particular legal structure.

24. The Colombia EOR Legal Test Comes Before the Cost Test

Colombia’s recent labor framework creates a particularly important constraint on the EOR comparison.

Law 2466 of 2025 addresses subcontracting and labor intermediation.

Decree 581 of 2026 adds regulatory provisions aimed at unlawful labor outsourcing and personnel supply.

The rules examine the substance of the employment arrangement, the independence of the service provider, worker subordination, and whether personnel are being supplied outside legally authorized structures.

A legal analysis published by KPMG Colombia in April 2026 also cautions that Colombia does not recognize EOR as a standalone statutory employment category and that arrangements resembling unauthorized temporary staffing can create substantial compliance risk.

Sources:

Colombia, Decree 581 of 2026

KPMG Colombia, Employer of Record Legal Analysis

What this changes in the study

The EOR cost curve is a commercial benchmark.

It does not certify that the proposed staffing arrangement is legal for a permanent 25-person Colombian team.

An actual company must obtain jurisdiction-specific confirmation of the provider’s employment structure and whether it may lawfully deliver the intended services.

Where EOR is not viable, it should be removed from the actionable choices.

Then the company must compare the remaining legally available structures.

A lower modeled price cannot justify unlawful labor intermediation.

This is one of the strongest reasons not to treat an international workforce decision as a generic three-column pricing comparison.

25. What if the Shadow Assignment Does Not Include Mobility Benefits?

The primary shadow model includes:

• $6,000 annual housing and mobility expenditure.
• $6,000 annual tax equalization reserve.

Together, those expenses total $12,000 per employee annually.

But not every foreign-work arrangement includes employer-funded mobility and tax protection.

Suppose the company no longer incurs the $6,000 housing and mobility expense.

Keep the rest of the shadow model unchanged.

Annual shadow recurring expense falls from:

$70,272 to $64,272 per employee

The direct entity’s recurring employment expense remains:

$65,370.56 per employee

Under those revised assumptions, shadow payroll has lower recurring modeled cost.

Its shared setup and annual compliance costs are also lower than the entity’s fixed costs.

Consequently, no entity-versus-shadow financial crossover occurs within the study’s headcount and duration ranges.

This completely changes the three-way ranking.

The entity may still beat EOR on service-fee economics, but it is not cheaper than the revised shadow arrangement.

However, the company must still establish that continuing the foreign employment arrangement is legally viable.

The absence of mobility benefits does not create an exemption from host-country employment law.

Why this sensitivity is important

Many simple comparisons treat shadow payroll as if it always includes housing, expatriate allowances, and employer tax equalization.

That is not universally true.

Those are assignment-policy expenses, not inherently unavoidable fees charged by shadow payroll providers.

Their inclusion can make the foreign assignment more expensive.

Their exclusion can reverse the economic conclusion.

The break-even model must distinguish the cost of payroll compliance from the cost of the employer’s mobility policy.

26. The Other Costs an Entity May Introduce

The base entity budget focuses on establishing and operating the employer.

Some businesses will face additional expenses beyond the modeled $45,000 launch and $15,000 annual overhead.

Potential categories include:

• Corporate income tax on taxable profits.
• Municipal and other applicable business taxes.
• Transfer pricing and intercompany agreements.
• Foreign-exchange administration.
• Local management and directorship requirements.
• Industry-specific registrations or licenses.
• Office premises and equipment.
• Employee recruitment and training.
• Corporate insurance.
• Audits where required.
• Additional data protection and cybersecurity compliance.
• Financing costs.
• Entity liquidation or closure expenses.

These are not automatically applicable in the same amount to every entity.

Some depend on revenue, activities, ownership, employee numbers, asset levels, or regulatory classification.

For the primary study, Ivvora excludes corporate income tax and other profit-dependent taxes.

That is because the dataset models employee costs, not the Colombian entity’s revenues and taxable profits.

It would be misleading to invent a corporate income-tax expense without modeling income.

A CFO preparing a real investment decision should add those taxes and obligations wherever they are expected to arise.

27. The Reproducible Ivvora Headcount Break-Even Formula

The entire study can be reconstructed from a few cost variables.

Let:

• N = Number of employees.
• Y = Years of employment.
• S = Annual gross salary per employee.
• C = Annual employer contributions.
• B = Annual mandatory benefits.
• EF = Annual EOR service fee per employee.
• EO = One-time EOR onboarding budget per employee.
• PA = Annual direct entity payroll administration per employee.
• ES = Initial entity setup budget.
• EC = Annual entity compliance and corporate overhead.
• SA = Annual shadow/mobility cost per employee.
• SO = Shadow onboarding cost per employee.
• SS = Shared shadow setup budget.
• SC = Annual shared shadow compliance expense.

Formula 1. EOR total cost

EOR total = N × [Y × (S + C + B + EF) + EO]

Substitute:

S = $48,000

C = $7,930.56

B = $8,480

EF = $7,188

EO = $500

For five employees over three years:

5 × [3 × ($48,000 + $7,930.56 + $8,480 + $7,188) + $500]

EOR total = $1,076,478.40

Formula 2. Entity total cost

Entity total = ES + (EC × Y) + N × Y × (S + C + B + PA)

Substitute:

ES = $45,000

EC = $15,000

PA = $960

For five employees over three years:

$45,000 + ($15,000 × 3) + 5 × 3 × ($48,000 + $7,930.56 + $8,480 + $960)

Entity total = $1,070,558.40

Formula 3. Shadow/mobility total

Shadow total = SS + (SC × Y) + N × [(SA × Y) + SO]

Substitute:

SS = $8,000

SC = $5,000

SA = $70,272

SO = $1,400

For five employees over three years:

$8,000 + ($5,000 × 3) + 5 × [($70,272 × 3) + $1,400]

Shadow total = $1,084,080

Formula 4. Entity versus EOR headcount break-even

Where local salaries, employer contributions and mandatory benefits are equal:

Break-even headcount = (Entity setup + Annual entity overhead × Years) ÷ [Years × (Annual EOR fee − Annual entity payroll administration) + EOR onboarding per employee]

For Year 1:

($45,000 + $15,000) ÷ [($7,188 − $960) + $500]

= 8.92

First whole-number break-even: 9 employees

For three years:

($45,000 + $45,000) ÷ [3 × ($7,188 − $960) + $500]

= 4.69

First whole-number break-even: 5 employees

Formula 5. Entity savings

Entity savings = Alternative total employer cost − Entity total employer cost

A positive result indicates that the entity is cheaper than the comparison structure.

A negative result indicates that the alternative is cheaper.

Formula 6. Three-way minimum cost

Lowest modeled cost = Minimum of Shadow total, EOR total, Entity total

This calculation should only be used after excluding employment structures that are not legally viable.

The result is a financial ranking, not an employment-law approval.

28. Frequently Asked Questions

At what headcount is a foreign entity cheaper than EOR?

There is no universal threshold.

Under Ivvora’s Colombia model, using a $599 monthly EOR service fee, a $45,000 operational entity setup budget, and $15,000 annual entity overhead, the entity becomes cheaper at nine employees in Year 1.

Over three years, the crossover occurs at five employees.

Those figures are conditional synthetic calculations, not average market thresholds.

Is it cheaper to establish an entity for five employees?

It depends on the planning horizon.

In the primary model, an entity is approximately $26,360 more expensive than the EOR benchmark during Year 1 for five employees.

Over three years, the entity becomes approximately $5,920 cheaper.

The result assumes constant headcount and compensation throughout the period.

Should a company establish an entity for ten employees?

An entity can become economically attractive at ten employees.

In Ivvora’s primary model, it is approximately $7,280 cheaper than EOR in Year 1 and $101,840 cheaper over three years.

But the company must also consider legal employment requirements, corporate governance, revenue-generating activities, administrative capacity, and local operating needs.

How much does establishing a company in Colombia cost?

Government registration charges depend on the legal entity, subscribed capital, assets, location, and applicable fees.

The study’s $45,000 figure is not a statutory registration charge.

It is a hypothetical complete operational launch budget including legal, accounting, payroll, tax, banking, and employment infrastructure.

The actual budget could be substantially lower or higher.

Is EOR cheaper than an entity for one employee?

The published-fee model makes EOR substantially cheaper for one employee over both one and three years.

However, Colombia’s restrictions on labor intermediation mean that an actual EOR arrangement must be assessed for legal viability.

A financial saving does not establish that the proposed employment structure is compliant.

Is shadow payroll an alternative to establishing a local entity?

For qualifying temporary international assignments, shadow payroll can support host-country payroll reporting while an employee remains on home payroll.

It does not automatically provide a lawful structure for a permanent local workforce.

Whether a local entity or other arrangement is necessary depends on the actual employment activities and local legal requirements.

Does EOR include employer social contributions in the management fee?

The advertised EOR management fee should not be assumed to replace gross salary, employer contributions, or mandatory benefits.

Those employment costs are generally funded separately.

The study therefore models statutory employment costs and provider service fees independently.

What employer contribution rate does the Colombia model use?

For the modeled employee earning $48,000 annually at COP 4,000 per dollar, the qualifying local-employer scenario uses a 16.522% contribution rate.

This assumes Article 114-1 exemptions apply, the employee remains below ten monthly minimum wages, and the lowest occupational-risk classification is applicable.

Actual employer contributions require payroll-specific assessment.

What happens when the employee earns more than ten minimum wages?

Qualifying exemptions from specified employer contributions may cease to apply.

That can increase the relevant employer contribution rate.

The actual threshold and eligibility must be checked for the applicable year and employee compensation.

Does hiring more employees always make an entity cheaper?

No.

If entity setup, recurring compliance, office requirements, local management or regulatory costs increase substantially, the entity may remain more expensive.

If EOR providers offer volume discounts, the break-even can move to a higher headcount.

If shadow payroll is legally viable and does not involve mobility or equalization benefits, its cost structure can also be materially different.

Should companies include refundable EOR deposits as expenses?

Not automatically.

A refundable deposit is generally a cash-funding or balance-sheet item rather than a permanent employment expense.

The economic cost of tying up cash and any eventual deductions or currency losses should be calculated separately.

Can the break-even model be used for India, Brazil, the Philippines or Poland?

Yes, the mathematical structure can be reused.

However, the salary rules, social contributions, statutory benefits, entity registration costs, employer exemptions, and staffing regulations are country-specific.

The Colombian rates should not be copied into another country’s employer-cost model.

Conclusion: The Real Entity Break-Even Depends on Headcount and Time

The usual advice is that companies should use EOR for a small international workforce and establish an entity when hiring becomes substantial.

That advice is incomplete without numbers.

Ivvora modeled one, three, five, ten, and twenty-five employees in Colombia across one-year and three-year horizons.

Under the primary assumptions, the entity requires a $45,000 upfront operational investment and $15,000 in annual corporate overhead.

It also has lower recurring per-worker payroll administration costs than the modeled $599 monthly EOR management fee.

That produces a clear result.

Year 1: An entity becomes the lowest-cost modeled structure at nine employees.

Three years: The crossover moves to five employees.

At 25 employees, the model estimates $108,200 of entity savings against the EOR fee benchmark in Year 1 and $389,600 over three years.

But those figures depend on the workforce’s compensation, statutory employer contributions, administrative expenses, provider fees, and expected duration.

The findings also show what changes the result.

A discounted EOR fee can push the entity crossover to a higher headcount.

Higher entity overhead can delay the financial advantage.

Mobility and tax equalization expenses can make continued foreign assignments more expensive.

And Colombia’s legal restrictions may remove particular EOR or foreign-assignment arrangements from the available choices entirely.

The answer is therefore not simply that companies should establish an entity after reaching a predetermined number of employees.

A foreign entity becomes economically rational when the recurring savings from direct employment exceed the full cost of forming, operating, and eventually maintaining or closing that entity, over the company’s expected operating horizon.

For an international finance team, the most important inputs are not just the country and the number of employees.

They are the compensation structure, legally available employment arrangements, employer obligations, setup investment, ongoing administration, and expected duration.

That is how a headcount decision becomes a defensible international employer-cost strategy.

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Research Methodology, Sources and Limitations

Research organization: Ivvora
Publication date: October 2026
Study classification: Original synthetic employer-cost modeling
Reference market: Colombia
Home country for foreign-assignment scenario: United States
Annual gross salary: $48,000 per employee
Headcounts: 1, 3, 5, 10 and 25 employees
Horizons: Year 1 and three years
Currency: USD
Illustrative exchange rate: COP 4,000 per USD

Primary regulatory and commercial sources

1. Colombia, Decree 159 of 2026

Source for the provisional 2026 monthly minimum wage used to establish salary-related contribution thresholds.

https://cancilleria.gov.co/normograma/compilacion/docs/decreto_0159_2026.htm

2. DIAN, Colombian Tax Statute, Article 114-1

Primary legal reference for exemptions from specified employer health, SENA, and ICBF contributions.

https://normograma.dian.gov.co/dian/compilacion/docs/estatuto_tributario.htm

3. UGPP, Employer Social-Security Contributions

Reference for employer pension, health, occupational-risk and compensation-fund contribution rates.

https://www.ugpp.gov.co/abc_empleados_domesticos

4. Colombian Ministry of Justice, Employment Settlement

Reference for prima, cesantías, interest and vacation calculation methods.

https://www.minjusticia.gov.co/programas-co/LegalApp/Paginas/Como-liquidar-un-contrato-de-trabajo.aspx

5. Colombia, Official Company Creation Portal

Reference for the company-registration process and statutory registration charges.

https://vui.gov.co/es/portafolio-tramites/creacion-empresa

6. Colombian Single Business Window

Reference for formal company registration, RUT, NIT, and related processes.

https://www.vue.gov.co/tramites-y-consultas/creacion-empresa-persona-natural-juridica

7. Deel, Official EOR Pricing

Source for the published $599 monthly EOR management-fee benchmark.

https://www.deel.com/pricing

8. Remote, EOR Management Fees

Source for the published $699 monthly management-fee sensitivity.

https://support.remote.com/hc/en-us/articles/37480463833229-How-much-is-the-management-fee-for-employees

9. Deel, EOR Deposit Calculations

Source for published provider deposit principles.

https://help.letsdeel.com/hc/en-gb/articles/15574494993297-About-EOR-Deposit-Calculations

10. Colombia, Law 2466 of 2025

Primary legislative reference for the relevant labor reform and labor-intermediation considerations.

https://www.cancilleria.gov.co/normograma/compilacion/docs/ley_2466_2025.htm

11. Colombia, Decree 581 of 2026

Primary regulatory reference for provisions addressing unlawful outsourcing and labor intermediation.

https://www.alcaldiabogota.gov.co/sisjur/normas/Norma1.jsp?i=193365

12. KPMG Colombia, Employer of Record Legal Analysis, April 2026

Professional commentary on Colombian EOR arrangements and legal risks.

https://www.asuntoslegales.com.co/consultorio/employer-of-record-solucion-agil-o-bomba-de-tiempo-laboral-4365517

13. IRS, US Citizens and Residents Employed Abroad

Reference for the applicable US employer Social Security and Medicare treatment used in the temporary-assignment scenario.

https://www.irs.gov/individuals/international-taxpayers/social-security-and-medicare-tax-for-us-citizens-and-residents-employed-abroad-by-american-employers

14. US Social Security Administration, Totalization Agreements

Reference for the US social-security agreement framework and partner-country list.

https://www.ssa.gov/international/status.html

Original research contribution

Ivvora’s original contribution is the construction of a three-structure employer-cost model that combines statutory employment components, hypothetical commercial pricing, and workforce-size scenarios.

The study derives exact whole-number entity break-even headcounts for one-year and three-year periods.

It also models EOR fee sensitivity, entity-overhead sensitivity, the effect of Article 114-1 contribution exemptions, refundable deposit requirements, and a nonconstant hiring path.

The principal original findings are:

• Nine employees for the modeled Year-1 three-way crossover.
• Five employees for the modeled three-year crossover.
• $108,200 in Year-1 entity savings against the EOR fee benchmark at 25 employees.
• $389,600 in three-year entity savings against that benchmark at 25 employees.
• Changes in the crossover when EOR provider fees or entity compliance budgets are modified.

These are independently calculated synthetic outcomes, not observed market statistics.

Critical methodological limitations

The study assumes identical gross salaries across employment structures, but does not establish equal employee net pay, equivalent pension coverage, identical benefits, or equal employment rights.

The foreign-assignment model assumes a legally viable temporary employment structure and excludes additional Colombian obligations unless explicitly stated.

The EOR pricing model is conditional and does not establish legal permissibility under Colombian labor law. Particular third-party staffing or labor-intermediation arrangements may be unavailable or prohibited.

The local employer contribution model assumes both locally employing entities qualify for Article 114-1 exemptions. Actual tax status and employee eligibility must be verified.

The study holds 2026 statutory assumptions and the illustrative exchange rate constant over a hypothetical three-year period. Actual future costs may differ.

The model excludes corporate income tax on profits, employer recruitment costs, local office expenses, financing costs, exceptional benefits, unused vacation settlements, severance, entity liquidation, employee turnover and salary escalation.

All entity setup, corporate compliance, payroll administration, mobility, tax equalization, EOR onboarding and other unspecified fees are synthetic commercial assumptions.

Government registration charges are not represented by the $45,000 operational setup budget.

No legal employment structure should be selected solely on the basis of the modeled financial ranking.

Suggested citation: Ivvora Research (2026). Shadow Payroll vs Setting Up an Entity: The Break-Even Headcount at 1, 3, 5, 10 and 25 Employees. A Colombia Employer-Cost Study.