Employer of Record (EOR) vs Professional Employer Organization (PEO): What's the difference?

What is a PEO?

A Professional Employer Organization (PEO) provides services related to HR outsourcing to businesses under a co-employment agreement. It takes care of all the functions related to HR while the client company retains control over management and daily operations of the employees.

Features of PEO:

• Requires the existence of a physical entity in the region the business plans to hire from.
• HR outsourcing services include employee onboarding, payroll management, and benefits administration.
• Both the PEO and the firm are equally liable and share compliance responsibilities.

What is an EOR?

An Employer of Record (EOR) is a legal local employer on behalf of the business planning to expand and hire its workforce beyond its country's geographical borders without establishing a local physical entity.

Features of EOR:

• Manages employee hiring, onboarding, payroll, tax, compliance, and employee benefits for a global workforce.
• EOR is the legal employer in foreign markets.
• Takes on the responsibility to ensure compliance with local employment laws.

‍

Employer of Record vs Professional Employer Organization - Understanding the difference

1. Who is the Official Employer? - The Employment Model:

A PEO operates under the co-employment model, whereby it functions with the company and shares the responsibilities of an employer. Moreover, it manages all the HR functions of that company. An Employer of Record is the legal employer for a firm's potential employees. The HR outsourcing services provided by an EOR are similar to a PEO; however, it takes on complete responsibility to ensure that the firm stays compliant while hiring internationally. This is a key aspect when comparing employer of record vs PEO when targeting international employees.

2. Geographical Reach: Local vs. Global Expansion

PEOs are ideal for companies that plan to expand locally, as this model primarily supports companies operating within their own country of operations. PEOs act as an outsourced HR department for small and medium-sized businesses when it is complex for them to have an in-house HR team.

EORs are the right option when planning to expand internationally. Since the EOR serves as the legal employer, businesses can hire talent in new regions. In the debate of local vs global expansion, the decision between PEO and EOR plays an important part.  

Source: https://www.orbtrak.com/insights/eor-vs-peo-whats-the-difference