Employer of Record (EOR) and Professional Employer Organization (PEO) operate like business partners and help companies manage teams across the world. While a PEO acts as a co-employer, an EOR is the legal employer of the distributed workforce of an organization. A clear understanding of a PEO versus EOR is the first step in rightly choosing one out of these two for your company’s complex needs of managing the human capital.

Both the EOR and PEO provide Global Mobility Solutions, however, an EOR as the legal employer does much more than just manage HR outsourcing. Overseas employment is the main function of an EOR that is achieved by removing international barriers to business expansion by using its robust network of local entities across the world.

An EOR

Effectively managing the HR, legal, tax, and local compliance requirements of your employees is the primary domain of responsibilities of an EOR in any country where your organization doesn’t have any legal representation.

Organizations planning to quickly and compliantly hire employees can do so through their EOR partner as it provides the organizations with flexible and cost-effective entry into any market without requiring any business registration.

Hiring an EOR partner makes you stress-free and allows you to focus on the core responsibilities.

The Working of an EOR

Once an organization makes a partnership agreement, the EOR is allowed to employ the staff through its local entity legally. An EOR can onboard, provide global payroll solutions, manage taxes, ensure payroll compliance, and carry out benefits administration including unemployment claim reporting on your behalf, be it a three-month assignment or a permanent position. EOR becomes your legal employer while you remain the managing employer.

A PEO

A Professional Employment Organisation (PEO) is a company that mainly partners with SMEs and provides HR services for full-time, permanent employees.

HR services that are provided include payroll processing, benefits administration, regulatory compliance, and tax filings.

International PEOs operate as a company’s outsourced HR department so in-house teams have more time to focus on their core functions.

A PEO is a partner company and not the employer of your workforce. Partnering with an international PEO can relieve an organization of its HR responsibilities, however, the organization is still held accountable for both legal and day-to-day operations including registering your business in the jurisdiction where you hire staff.

Working of a PEO

A PEO acts as a co-employer and when you outsource the services of a PRO, you enter into a co-employment agreement of contractually allocating and sharing your HR responsibilities and liabilities. This gives you legal insurance that the PEO manages part of your HR requirements and only alleviates part of the HR risks.

Difference Between an EOR and a PEO

Both an EOR and a PEO handle HR functions for your company, however, these two are not the same. The five major differences that separate these two entities apart are outlined below.

Structure

Structurally a PEO is a co-employer while an EOR is a full legal employer having a direct employment model.

When you hire a PRO, you remain the main employer with authority over HR-related decisions. However, with an EOR who is your trusted partner with local expertise, you need to give up some authority and control over HR-related decisions.

Scope

While PEO services outsource your HR activities, EOR services take over your HR responsibilities as the employer. Hiring a PEO doesn’t absolve you of your responsibilities of complying with location-specific labor laws.

Scale

As PEO acts as a co-employer to manage HR-related tasks, it helps create more value for companies with more full-time rather than temporary employees.

In contrast, an EOR provides more flexibility to companies that rely on temporary employees or that need access to talent in other locations. There are no minimum employees for an EOR and even a few staff hiring assignments may be given.

Risk

A PEO being a co-employer, cannot lessen your employment liabilities and HR risks and can only manage and share them.

However, if an EOR acts as the actual employer of your workforce and assumes all employment risks and liabilities, your HR risks are reduced.

Cost

The hiring of PEO and EOR services involves both short-term and long-term costs. Both these services usually charge either a flat monthly fee based on employee headcounts or charge a percentage of monthly payroll expenses. Sometimes PEO services also demand a one-time introductory charge before rendering the services.

Global EOR Services generally cost less than a PEO in the long term as it covers insurance and benefits for your distributed workforce, saving time and money for your organization. With global PEO services, you would still be responsible for benefits and insurance.

Should You Choose an EOR or a PEO for Your Organization?

Lots of factors come into play when choosing between an EOR and a PEO. Hiring a PEO is ideal when all employees are in a single location, however, with the company expanding outside to other locations, it becomes entirely challenging.

An EOR is legal and can operate in many countries across the world to address your human capital needs. If your business wants to employ staff globally, then PEO is not the right solution.

Businesses eyeing new overseas markets need agility, cost awareness, and expertise. Generally, when a company goes global, complexities abound due to unfamiliar labor laws and regulations and the company needs a trusted partner like an EOR to successfully cross over the barriers to global expansion and realize optimum revenue growth.

Introduction

As today’s global village gets smaller with every passing day, many forward-looking companies are increasingly entering into mergers and acquisitions (M&A) and overseas collaborations for reaping the benefits of operating and trading in multiple countries and promoting innovation, development and market outreach. These companies are also sending and engaging their HR and legal resources to foreign locations to facilitate the effectiveness of such business expansion and ensure continued organizational sustenance. Going global, however, is posing challenges due to the scarcity of talents and necessary skill sets in many locations and industries.

Today most companies expanding overseas are managing international functions in the same way as they would in their home countries. However, what works for businesses and employees in one country may not work in another in the face of constantly changing markets and regulatory requirements in terms of employee work authorization, benefits and taxation. For enduring business success in this new era of globalization, effectively managing and infusing a sense of belongingness among the international talent pools through a well-crafted global mobility strategy is seen as indispensable.

Global Mobility- What is it?

Global mobility is an organisational function enabling employees to seamlessly move from one location to another and achieve success both in their professional and personal lives. This function primarily deals with logistical issues of relocation, legal and tax compliance, support for family and dependents, technology and fixing employee settlement. As this function evolves, it includes more strategic aspects of value creation, talent development and workforce satisfaction. HR functions usually run and manage global mobility programs in consultation with a professional and well-reputed service provider of global mobility solutions.

Mobile employees are company workers who are transferred to another country either permanently or on long-term or short-term assignments as well as those who travel to other countries quite often.

What are some key challenges faced by the Global Mobility functions?

No doubt our world is becoming smaller due to increased connectivity, however, it is also becoming more complicated due to higher regulatory intervention and geopolitical uncertainties. The key challenges faced by the global mobility functions include the following.

Immigration Legislation
Immigration legislations are subject to frequent changes and each country has its own set of immigration policies that vary in complexity. As immigration policies constantly evolve depending on social, political and economic situations, it makes immigration a tough global mobility challenge for organizations.

Tax Law and Employment Requirements
Like immigration legislation, tax and social security regulations are also becoming incredibly complex. Tax policies not only vary from country to country but may also be different in different jurisdictions in the same country adding more complications and challenges for global mobility.

To ensure that business is following the rules and regulations when it comes to taxes, one should seek professional advice about the payroll-related aspects of global mobility by engaging an expert global payroll solutions provider to address withholding employee taxes needed by the home and host countries and withholding for social security and other benefits required by the home and host countries.

Inadequate Skill Sets
Global mobility professionals running global mobility programs often lack data analytics and technology skills which are critical in making the right strategies and recommendations

Relocation Logistics
The logistics of relocating employees and sometimes their families, to different parts of the world, can be extremely tricky and challenging considering travel assistance, immigration/visa services, educational assistance for children, language training, international banking, airport transfers, housing and many more.

Talent Identification and Employee Compensation
Devising a way to match talent to global assignments and opportunities can be an uphill task for global mobility functions as unconventional elements like a gig and remote working are finding their way. Deciding on employee compensation also becomes challenging in such situations considering employee satisfaction and the financial burden on the organisation.

How can Global Mobility functions overcome challanges?

First, businesses need to design a thorough global mobility strategy with flexible and cost-effective policies for seamlessly transitioning employees travelling or living in foreign countries to address global mobility challenges successfully. The strategy must provide a well-documented system, eliminating outdated policies and contradictory procedures with comprehensive guidance for cross-border employee mobilization which must be in perfect alignment with the organization’s business plan, vision, mission and objectives.

Second, businesses must effectively address the logistical challenges by developing robust supply Chain management.

Third, multiple payrolls must be eliminated and a global payroll system with an appropriate interface to be put in place for effective management of payroll.

Fourth, a travel Tracking system should be implemented for timely tracking of business travel and ensuring accurate visibility of the mobile workforce.

Fifth, an HR tracking system must be in place to quickly know employee skills, educational background and linguistic capabilities.

Last but not the least, implementing a skill development program for global mobility professionals including mobility compliance risks, talent management, finance, vendor Management and interpersonal skills.

How can Global Mobility functions move beyond compliance and add value to an organisation?

Though compliance continues to be one of the key priorities in global mobility ensuring timely tax reporting & withholding and appropriate work authorizations and renewals, the priorities are gradually shifting to that of value creation. Mobility professionals are now adding value to an organisation in several ways.

Flexible policies are helping organisations to deploy a global workforce quickly and retain competitive advantage by avoiding wastage of time and talents to achieve increased revenue.

Value is delivered when mobility functions proactively respond and advise the future mobility needs of the organisation.

Identifying issues and mitigating risks early enough with minimal implication on cost and resources.

Increased investment in technology and automation helps improve operational efficiency and maximise the productivity of mobility processes resulting in cost advantage.

Outsourcing mobility programmes to experts in legal and relocation services helps eliminate penalties and delays in visa processing reducing costs.

THE TAKEAWAY

The main pillar of global mobility is an impeccable strategy and a committed team to implement that strategy. To smoothly deploy employees in international locations and effectively manage immigration and payroll issues, businesses are recommended to engage a global mobility partner.

The challenges associated with global mobility couldn’t deter businesses from expanding their operations internationally, instead enhancing their growth prospects by identifying the hurdles and deploying professionally qualified global EOR services with proven experience. Being an HR service, an Employer of Record keeps a business compliant with local laws and can onboard and manage staff on an organization’s behalf.