In the most ideal setting, hiring talent overseas should be a breeze and compliance and payroll are processes there is no need to worry about. Unfortunately, international regulations often make the whole process complex and difficult for businesses.
Employers of Record (EORs) and professional employment organizations (PEOs) are both key partners to assist businesses in hiring international workers, but there are distinct differences between these two organizations. Understanding these differences may be challenging at first, but this article will give you a better understanding of PEO vs EOR in multiple facets related to business. Why it matters, and how to choose which partner to help you with your business are also explained.
PEO Defined: What is a PEO?
A Professional Employer Organization (PEO) is an organization that provides joint-employment relationships with an employer by leasing PEO employees to that employer. PEO services usually include payrolling, employment benefits recommendation, tax administration, and regulatory compliance. Some companies, especially small and medium-sized businesses, opt to have their PEOs provide comprehensive PEO Human Resource (HR) solutions.
EOR Meaning: What is an EOR?
An Employer of Record is a third-party organization that takes over the role of hiring and paying the employees of their client-company as well as all the other employment-related tasks from their client. The EOR is the registered employer of the employees. However, the client-company does not lose its administrative freedom to make all the decisions related to job descriptions, compensations, and employee termination under this arrangement.
Some Employer of Record services include hiring, retaining, and paying the client-company’s employees. They are also expected to take over many of the Human Resource tasks associated with managing international employees, depending on the terms and conditions stipulated in the EOR agreement.
EOR vs PEO: What is the difference?
The definitions of the PEO and the EOR are often used interchangeably in the HR industry, but there are a few important distinctions to note. A PEO’s role in a company is basically similar to the function of the Human Resource department, while EORs go a step beyond by being involved in the hiring and onboarding of employees for their client-companies.
More technically, if you work with a PEO, it is not included as a party in employment contracts between you and your employees. You still create the terms and abide by the agreements on your own. With an EOR, the setup is reversed. Employer of Record companies are responsible for all employment contracts between you and your employee while complying with labor laws of the country where your employee is based.
Partnering with a PEO is beneficial for companies that have some presence in an area, but have limitations in providing for their employee needs. EOR services have a wider depth and usually come in better packages. Working with an EOR also provides the convenience of employing workers and this is usually done through a service agreement. The EOR simply represents the employer on paper to help you hire employees where you do not have a legal entity.
Which one do you need?
There are several basic factors to consider when choosing the right employee management service to invest in for your business; matters such as how many remote employees you are planning to hire, what type of employment you want, and other factors. To help you decide, here are a few basic questions to go through:
Do you own a legal entity in the country where the employee lives?
Local legal entities make the distinction between EORs from PEOs. It is a known fact that businesses are required to have a local legal entity or partner with an EOR when hiring employees from another country. This process can be time-consuming and expensive, even for large companies that already have presences in several countries.
Partnering with an EOR would be the most practical choice for companies that are not looking into major expansions in other countries, and so, would not need to open a legal entity in another country. Yet, even businesses that do own legal entities in their target countries may still lack resources that provide for all their employees’ needs. This is where the PEO is needed.
How many employees do you want to hire?
Most PEOs and EORs impose minimum employee counts to begin a partnership. This can be unreasonably costly for startups and small businesses. Rivermate breaks barriers by removing this obstacle for your business and is more than happy to help you manage employees anywhere in the world.
If you plan to hire a team of employees in another country without an EOR, you just need at least one of your new employees to serve as your local labor law expert on site.
What can you readily offer your employees?
Your current capabilities and resources can determine which employee management service you should opt for. In some cases, companies that own a legal entity in a country may still decide to work with an EOR because of the more complete system it has in managing compliance and liability.
EORs usually pay higher prices for insurance than PEOs, because insurance providers charge more for companies below the minimum employee count. While most EORs include these in their cost and fees for companies, Rivermate offers a flat rate without hidden charges and minimum costs; just simple transparent pricing.
Are you hiring full-time workers or contractors?
As you already know, PEOs work best for businesses that have legal entities in other countries. So, if you are only hiring a few contractors in another country, the most logical choice would be to partner with an EOR. For full-time employees, it is fully dependent on your legal status in the country of operation--whether you own a legal entity or not. If not, EOR is always the answer.
Choosing the right PEO or EOR for your team
Whether you are choosing to work with an EOR to employ global workers or a PEO to manage their benefits, do not forget that employee experience is what matters most as employee satisfaction and loyalty are the keys to any successful business. Rivermate helps bring your business to success by serving as your EOR to take care of this aspect of your business. Learn more about Rivermate here.
Frequently Asked Questions
What are the advantages of using a PEO for payroll?
Professional Employer Organizations handle all processes related to compliance to help their clients avoid legal mistakes when hiring and managing employees. The following are the benefits of using a PEO to manage payroll:
- Reduced work. Having a PEO manage your payroll takes away a large amount of work from a business’ employees. This can help businesses focus more on their day-to-day operations, instead of managing simple payroll-related tasks.
- A PEO Payroll service assumes responsibility for compliance. Since the PEO holds itself accountable for responsibilities related to filing taxes for a company’s employees, a significant amount of liability is taken away from the client-company.
- Reduced expenses. You can also save money when hiring a PEO to perform payroll operations. PEOs work with many employees from different clients. This can make you take advantage of the buying power they provide when searching for group rates on health insurance, workers’ compensation insurance, retirement plans, and other employee benefits.
(READ: Are Payroll Services Worth It?)
What is a Professional Employer Organization? or What is PEO?
The meaning of PEO ultimately depends on the agreed-upon contract by the client-company and the PEO itself. But, a Professional Employer Organization or a PEO is basically an organization hired by a client-company to provide comprehensive Human Resource solutions for businesses, especially the small and medium-sized. Traditionally, the tasks they perform are payroll, benefits, tax administration, regulatory compliance assistance, and other HR tasks.
What is Globalization Partners?
Globalization Partners is an Employer of Record with a total of 54 entities based in Brazil, Australia, Mexico, France, Germany, Denmark, and Taiwan. It brands itself of having helped an increasing number of companies that retained their workers by transferring talent to anyone, anywhere.
Is PEO a good idea?
Hiring a PEO is great for entrepreneurs who strategize on lowering their employer costs. However, there could be real danger when the PEO you hired fails to properly file taxes for your employees.
What do you look for in a PEO?
Before hiring a PEO, you should consider a few things to ensure a smooth-sailing partnership. Among these things include the following:
- The PEO should provide a dedicated team of experts that handles your company’s Human Resource needs.
- The PEO should be skilled in payroll processing, benefits recommendation, and risk management needs.
- The PEO should give you one-on-one support when you need it, and that you can work with specialists.
What are Records of Employment?
The Record of Employment (ROE) is an official form required to an employee who wishes to apply for Employment Insurance benefits. The ROE details how long the employee has worked and how much they have earned with an employer.
How does a PEO work?
A PEO is an organization that handles Human Resource tasks on the behalf of the client-company. More specifically, it performs the following tasks:
- Processes payroll.
- Withholds and pays payroll taxes.
- Maintains workers’ compensation coverage.
- Provides access to employee benefit programs.
- Offers human resource guidance.
- Handles HR tasks such as benefits administration.