Hiring a dispersed workforce in a region where you don't typically do business means access to a diverse, high-quality talent pool. It also means navigating unfamiliar and complex labor and employment laws and regulatory requirements. Failure to properly deduct wages, obtain the right type of insurance, or apply for the right certifications can result in costly and time-consuming investigations, fines, or lawsuits.
To manage such risks, many business leaders use an Employer of Record (EOR) or Professional Employer Organization (PEO).
While industry experts use these terms interchangeably, there are quite a few differences between EOR and PEO.
Start here to learn what the difference is and which one is better for your distributed workforce. Let's get started!
peowitheorWhat's the difference?
Think of the PEO as a service provider. When you're looking for employees in multiple states or national regions, you can hire one to meet your administrative, human resources (HR) needs. They provide you with the following types of services:
Benefits plan administration.
Payroll processing. File your taxes.
However, to work with a PEO, your company must:
Register to do business in each state or country where you use PEOs; with
remains responsible for all employees in that jurisdiction.
In a nutshell, a PEO is an outsourced HR department. They specialize in managing HR-related tasks, while you continue to manage the day-to-day activities of your employees.
EOR, on the other hand, is a business that becomes a fully legal employer for your workers.
The EOR handles all the HR functions that the PEO has, and more. The EOR will be responsible for recruiting and employment contracts, handling day-to-day HR tasks, and managing business and insurance requirements. With an EOR, you don't need to have a business entity in the country where you hire full-time employees.
The EOR acts as a legal employer, employing workers to provide services to your company. This means that the EOR will enter into an employment agreement with the worker.
EOR also takes on all management responsibilities such as:
Onboarding. Payroll.
Advantage. Pull the plug.
EOR enters into a service agreement with the Company (i.e., you). As long as your company needs the services of your employees, the service agreement is binding.
A PEO is an extension of your business. More like your co-employer. You'll still have an employment agreement in place with the employee and will be responsible for complying with applicable employment laws and insurance requirements.
However, the PEO will provide most of the other administrative HR services you get through an EOR. For example:
File your taxes. Benefits administration.
Payroll processing. Health insurance.
Most EORS don't require you to have a minimum worker requirement. One, five, ten, come on!
This can be helpful for startups and small businesses, especially if they're looking to expand into new markets and build momentum before scaling up their workforce.
PEOs typically require businesses to have a minimum number of employees – usually five to ten employees. This can be prohibitive for small companies that don't have enough funds to cover such expenses.
EOR offers health insurance, general liability insurance, workers' compensation, and any other form of insurance required in your worker's home country. It's something to worry about and means more time to grow your business. You also get competitive rates because of their size – they can often negotiate preferential rates because they purchase insurance services in bulk from providers.
PEOs also provide health insurance, workers' compensation, and other benefits to their colleagues. Some PEOs also offer benefits programs, which include fitness programs, mental health screenings, and more. They also manage the entire process – from planning, policy renewals, to health insurance management.
EOR takes care of all the administrative paperwork and hassles that come with hiring workers in a country where you don't typically do business. You won't have to bother researching legal details or worrying about whether employment contracts, workers' compensation, and bonuses are compliant with local labor laws. Having a partner handle all of these sensitive compliance processes will make your life a lot easier.
Hiring through a PEO means you're still a joint employer and you'll need to make sure all employment contracts and other details are compliant. Unlike an EOR, you have a co-employment relationship with the PEO. This arrangement allows you to retain control over your employees and business while the PEO handles employee services like payroll and benefits.
With an EOR, you don't need to set up a legal entity in every country where you plan to hire workers. Setting up a legal entity can be an expensive, time-consuming, and laborious process. EOR has set up a legal entity in the country where you're expanding and uses that entity to hire and manage your employees.
If you're working with a PEO, you can only hire where you have a registered business entity. A PEO is more of an HR service provider.
Your choice usually depends on your HR needs at each point in time.
Are you looking to outsource your HR functions while retaining some form of control? You may need a PEO. Are you looking to fully outsource your HR functions so you can focus on other parts of your business? Hire an EOR.
As you can see, choosing the right service isn't that straightforward. Before deciding on the best option for you, you'll need to evaluate your talent strategy, business, and expansion goals.