While managing employees and providing them with payroll and HR functions, you may have heard of a Professional Employer Organization (PEO) or an Employer of Record (EOR). These two acronyms are frequently brought up in articles that offer solutions for growing companies. This is especially true for those that want to expand into new countries and markets. But often, employers ask themselves “what are the differences between a PEO and an EOR?”
Do they essentially function the same, and if so, how does someone go about choosing the right one? Here, we answer all these questions and more to help you grow securely and efficiently.
PEO vs EOR: Two Distinct Services
A PEO is a third-party outsourcing provider that a company will partner with in order to outsource its HR and payroll services. A PEO provides many different administrative and legal services such as contract management, payroll, taxation, employee recruitment, onboarding, etc.
Employer of Record services also provide many of the same HR and payroll services. However, They do this in a way that mean they take over as the legal employer of a worker.
One of the key distinctions is in how clients form partnerships with a PEO or EOR:
In a PEO relationship, the client enters into a joint employment, or co-employment, agreement. The PEO handles tasks like local law compliance, payroll, Human Resources support, benefits administration etc. However, the company retains full control over the employee, including hiring and termination. In this way, they retain full liability as a legal employer.
In an EOR relationship, the EOR organization becomes the official employer of the employee. While the client company still has authority over tasks and work schedule, the EOR takes over employer liabilities. This allows the EOR to take responsibility for all the most complex daily tasks related to employer-employee relationships. At the same time, they can guarantee legal security and compliance for all parties.
Another potential difference is that under a PEO agreement, all of the client company’s employees may be covered by the PEO’s services. This option is available to streamline the payroll and tax process. Here, the PEO can offer benefits and compensation for the more affordable rates of a larger group.
With an EOR, however, the client typically chooses employees to have their HR managed on an individual basis. This offers some flexibility if you need an EOR’s services for hiring single employees to test out new markets.
It may also help reduce liability concerns when working with independent contractors. This is because EORs can form work contracts in the same way as employment contracts.
It’s important to note that the above is the simplest way to distinguish between these two terms. However, the situation may be more complicated in practice or in some circumstances. Different countries may view these services differently in legal terms.
For example, in most countries the differences between these services for liability purposes are very minor. However, in the US, companies have to be more careful. US law sees a bigger distinction between PEOs as a form of co-employment. This can affect the way your company keeps records of employment, for example.
Some companies may also separate the two terms into the service (EOR) and the provider (PEO), however, this view is less common.
Simply put, these terms are often confused because a “definitive answer” may differ depending on a number of factors.
The Advantages and Disadvantages of both PEOs and EORs
- Provides services on a larger scale that in turn reduce costs more efficiently
- Can be easily integrated with RPO (Recruitment Process Outsourcing)
- Keeps the client company constantly up-to-date and compliant with local and international labor and tax laws
- Less control if the company wants to change the employee’s benefits provider
- This can cause additional risk if the PEO organization itself is not legally secure or competent
- Less legal hassle because an EOR is registered in a country as a whole and not by region
- Can offer solutions to boost the efficiency of companies that don’t have many employees
- Reduced elements of payroll burden that can result in overall cheaper fees
- Potential loss of control over employee connections as HR services are handled directly by the EOR
- There may be a need to redefine the relationship over time as company goals change
Key Questions to Consider Before Partnering with a Global PEO or EOR
Q: Do you have a registered business in the country where an employee lives/will work?
If you don’t already have a branch of your company in the employee’s location, then an EOR may be perfect for your expansion needs. With an Employer of Record, you can enter new markets, hire new staff, and manage payroll and tax laws. All this can be done without needing to set up a separate legal entity of the company.
Even if your employees are spread across a variety of employment laws, an EOR ensures consistent compliance and security.
Q: How many workers do you need to provider to take care of?
If you’re looking to hire multiple new staff, then a PEO has the right tools to handle your needs. A PEO can comfortably provide payroll and HR services on a larger scale. In turn, this reduces administration costs and streamlines company processes.
Q: Are you looking to recruit independent contractors or full-time employees?
An EOR acts as the official employer for the employees it hires on the client company’s behalf. This may make it a better option if you’re looking to hire independent contractors or temporary workers. In this way, an EOR puts another level of protection between you and workers in terms of liability.
In these cases, the EOR can handle all aspects of contract management and compensation. This includes attractive benefits and insurance that your company may not be able to provide alone.
Hire and Expand Overseas Simply with INS Global’s Worldwide PEO and EOR Services
With INS Global you can find the support and services you need in one tailor-made package. Whether you need a PEO or global EOR, we can help you expand quickly, smoothly, and fearlessly into new markets.
When combined with our international recruitment expertise, the possibilities are endless. We offer full service outsourcing for recruitment strategies worldwide. This includes everything from writing a job description to providing your hiring managers with best practices in your target market.
Global employment doesn’t need to be complicated thanks to our handling of day to day HR tasks. From our recruitment experts helping you in the hiring process, through managing workers compensation, we are here.
Our services can handle companies of any size and in any situation.
So, whether you are a small business or a global corporation, contact us here today.