EOR vs. PEO: The Differences - Which One Do You Need?

Running a global business is a dream for many. But, as a business looking to scale and expand globally, you will have to answer a lot of questions and make big decisions. Should my company have a presence in every country we’d like to operate and hire in? What is the best way to manage international teams and employees?

When doing your research on the latter, you’ll likely come across the abbreviations “EOR” and “PEO,” both of which are great options that can help you with global employees, payroll, taxes, and other HR matters. But what does it mean, and which is better?

Let’s dive in and explain all there is to know about the EOR vs. PEO dilemma, their differences and benefits, so you can decide which is best for your company.

Employer of Record vs. PEO: What's the difference?

Both EORs and PEOs offer similar services, and they all aim to help you with your HR functions. However, there are key differences that can significantly impact how you scale. It is important to understand who does what so you can choose the right solution for your business, and scale your business exponentially.

What is a Professional Employer Organization (PEO)?

PEOs are organizations that provide HR services to local small, medium, and large businesses. Partnering with a Professional Employer Organization can be beneficial for companies looking to outsource HR administrative tasks so their teams can focus on the core business goals.

Services typically provided by a PEO include handling employee benefits, payroll processing, employment contracts, recruiting and hiring, training and onboarding, and other employee-related HR tasks. You can also rely on a PEO for tax management and compliance support.

It's important to note that in order to outsource HR functions to a PEO, you must have a local legal entity in the country of operation. In addition, most PEOs require your company to partner with them, which means you are both accountable for legal compliance.

What is an Employer of Record (EOR)?

An Employer of Record is an organization that enables you to hire globally. EORs act as an intermediary organization hiring talent to work for your business, while taking on all the responsibilities of an employer. With an EOR, you are in full control of an employee’s day-to-day workload, without having to worry about additional administrative tasks.

As the legal employer of the talent, the Employer of Record manages the payroll, tax management, employee benefits administration, and navigates the complexities of employment law. Trusting an Employer of Record to hire global talent also ensures legal compliance, as the EOR assumes all liability for any compliance issues.

By working with an Employer of Record, you can not only hire talent globally, but you also enjoy the benefits of outsourcing HR functions related to remote employees. For example, you can rely on them to help you onboard and off-board employees, provide statutory benefits, and enjoy other benefits of relying on a global Employer of Record.

Benefits of employer of record vs. PEO for companies

So, as you can see from their definitions, there isn’t a startling difference between the two in day-to-day responsibilities - both EOR and PEO can handle HR matters for your company, including payrolls, employment requirements, and taxes.

However, with a PEO, you can outsource all your HR activities. Managing payroll, compliance, and taxes is a black hole for time and resources - two critical things that smaller companies often don’t have enough of.

By delegating employee-centric administrative tasks, you can focus on employees' day-to-day tasks and productivity. This is the biggest benefit of having a good PEO instead of an in-house HR department - you can focus your company’s time and resources on growing your business, not on navigating the administration.

On the other hand, a PEO can also limit your growth, as they typically only partner locally. To have a Professional Employer Organization managing your HR functions, you must have a company presence in the country where you are looking to hire and expand.

So, if you are looking to test new markets, hire international staff, or build a global team without the significant commitment that establishing a local presence requires, in the EOR vs. PEO dilemma - EOR will likely come out on top.

It allows you to hire employees from another country without establishing a presence. By relying on an EOR, you can sleep easy knowing that your legal obligations to your international employees are being met. You’re also outsourcing payroll, taxes, and legal compliance. Your employees will receive all the agreed benefits, and everything related to your new employees will be compliant with local laws and regulations.

Another major benefit of using an EOR is that you won’t be liable for anything relating to an EOR employee if something goes wrong. The EOR takes on full responsibility for maintaining compliance, whereas with a PEO you share the legal responsibility because it is a partnership.

Factors to consider when deciding between a PEO and an EOR

Now that you know the differences between the two, consider these three factors when deciding whether your company needs a PEO or an EOR to help you grow your business.

Are you hiring full-time employees or contractors?

While both types of talent can perform the same tasks effectively, there are some differences between employees and contractors that you should consider when hiring for the long term.

If you’re looking to hire full-time employees from another country, you may opt for an EOR, as this service allows you to hire them without establishing a local presence. However, if you decide to use contractors, you can rely on your PEO to help you manage their payroll.

Will you be establishing a presence in the country?

For some companies, expanding to another country is a major opportunity to grow. If this is your case, it will be beneficial to partner with a local PEO once you’ve established your local presence, outsourcing the HR functions, and allowing your team to focus on making the most of the new market.

For others, it may make more sense to cross borders slowly and carefully, without investing in a long and complex process of establishing themselves in a new country. In this case, the smart move is to go with an EOR to hire a few people or a small team that can quickly scale up or down.

Who is liable if things go wrong?

When building a new team or establishing your business in new countries, legal compliance with local regulations can play a crucial role in a company’s success or unfortunate shutdown. A reliable PEO or EOR will remove many of these concerns for you, handling legal matters and ensuring that your new venture is fully compliant with local regulations.

Still, if something does go wrong, the answer to the question of who is responsible differs between the two. With EOR, the service takes on full responsibility for issues with global employees. With a PEO, since you’ve entered into a partnership, both legal entities are liable.

EOR vs. PEO: Choosing the right solution for your business

Now that these acronyms have been explained,selecting the right one for your company should be easier. If you want to outsource HR to another company, a PEO is the right choice. If you are looking for a simple way to hire and manage global employees, a reliable Employer of Record is your best option.

Before committing to either, do your due diligence and choose your partner carefully. You don’t want to outsource your employees' payroll and benefits to a company with poor client support or hidden fees.

To avoid this, take your time to research and select the right PEO or EOR service provider. Doing so will provide invaluable support in growing your business beyond your own borders.

FAQs

Is a PEO an Employer of Record?

It depends on the specific PEO company. Some global PEO companies also offer Employer of Record services. Still, it is usually something that you should rely on an Employer of Record provider for, as they would take on all the responsibility for any issues that may come up.

What is the difference between global PEO and EOR?

There are three main differences between PEO and EOR. Firstly, a PEO focuses on HR responsibilities, while an EOR focuses on hiring people from other countries, taking on payroll, tax management, and legal compliance. Secondly, to operate in a country, a PEO requires you to establish a presence there. Finally, an EOR provides full protection in case of any employee issues.