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.
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 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.
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.
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.
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.
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.
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.