Companies increasingly seek new ways to efficiently manage their remote workforce in today’s ever-changing business landscape. As a result, many firms are turning to employer of record (EoR) and professional employer organization (PEO) partners to assist them in managing their globally distributed teams.
The fundamental difference between a PEO and an EoR is that a PEO works as a co-employer, whereas an EoR is the legal employer of your remote workforce.
Understanding the differences between a PEO and an EoR is critical in selecting the best solution for your organization’s remote hiring needs. While both options offer significant advantages for simplifying your HR processes, their legal structures and employment responsibilities differ.
In this post, we’ll look at the notable differences between PEOs and EoRs and the critical decision-making factors businesses should consider when choosing between these options.
Whether you’re a growing startup or an established enterprise, this piece is for you.
What Is an EoR?
An EoR is a company that relieves small to large enterprise-sized businesses of all employer-related responsibilities by serving as the legal employer of record for their employees in locations where they don’t own an entity.
This means they manage all of the crucial aspects of being an employer, such as:
- Locality-specific onboarding
- Benefits administration
- Payroll
- Payroll compliance
- Unemployment claim reporting
- Taxes
When you engage with an EoR, you retain the authority to manage your staff and make hiring, firing, and wage-setting decisions. Yet, the EoR ensures everything is in order and all legal responsibilities are met.
Suppose you want to hire top talent fast and legally, no matter where they are. In that case, an EoR partner allows you to access practically any market with all the complicated realms of employment law already handled.
They’ll take care of the legal stuff so you can focus on running your business and taking care of your employees.
What Is a PEO?
A PEO is a third-party HR firm that can help you with many nitty-gritty HR duties. Companies that require assistance finding full-time permanent employees in their local area typically turn to PEO partners to handle tasks such as:
- Benefits administration
- Payroll processing
- Tax filings
- Risk management
- Regulatory compliance
When you partner with a PEO, they handle your HR tasks. However, you still retain control over your employees’ day-to-day operations and management, including hiring, firing, setting wages, and registering your business where you hire your workers.
Main Differences Between an EoR and a PEO
While both an EoR and a PEO handle HR functions for your firm, they are not the same thing. Here are eight significant differences between EoRs and PEOs.
Structure
A PEO is a third-party company that helps manage HR duties for an organization when they don’t want to carry out those duties in-house. They essentially act as a co-employer.
An EoR is a partner that handles HR responsibilities for remote workers in areas where the organization doesn’t have an entity (for example, in another country), providing access to benefits and local expertise. If you partner with an EoR, they will be the legal employer for your workers.
Risk
A PEO shares employer obligations with its clients, but the client company remains the primary employer and, therefore, will share some of the risk. The PEO will usually be responsible for ensuring compliance with labor laws, handling payments and benefits, and any other HR-related tasks.
On the other hand, an EoR takes responsibility for all employment risks and liabilities relating to its services.
Scale
PEOs might require a minimum number of employees, but it is possible for smaller businesses to find PEOs with a minimum number they can meet. They are often used by small and medium-sized businesses because they can provide access to better benefits than a smaller company could normally access on their own (for example, cheaper health insurance plans). In general, they may be more helpful to companies with more full-time employees than temporary workers.
EoRs are good at working with small or large companies. They are less likely to have employee minimums, so hiring just one employee in a location is possible.
Scope
A PEO helps with HR services in places where your company already exists. Their expertise is tied to the location where you are.
On the other hand, an EoR hires and employs workers in new locations or countries where you don’t have a presence. They know the local rules and hiring practices, making it easier to expand your business.
Cost
PEOs and EoRs have similar pricing structures with upfront and long-term costs. They typically charge a flat monthly fee per employee or a percentage of the monthly payroll. A PEO may also charge an initial fee to set up services.
An EoR partner normally saves you more money and time in the long term over a PEO because they typically handle insurance and benefits for your distributed workforce.
Growth
As your company grows, its HR needs become more complex, and the differences between PEOs and EoRs become more important.
PEOs can provide a long-term partnership and are better for full-time employee recruitment, while EoRs are suitable for project-specific employees and temporary or seasonal staff and mitigating compliance risks.
Services
A PEO can handle payroll, employee benefits, taxation, workers’ comp, and risk management and offers access to high-quality insurance at lower premiums.
EoRs provide similar services but take on fewer tasks than PEOs, and they can help you hire temporary employees or independent contractors who are covered under the EoR’s insurance.
An advantage of collaborating with an EoR is that they can register your business in new locations, saving you time.
Flexibility
EoRs handle fewer HR functions than PEOs, but the tasks they do handle can be more complex.
EoRs can be a good fit for microbusinesses with fewer than ten employees, as some PEOs may not accept clients of this size.
PEOs can have quite flexible services and are best for full-time permanent employees, while EoRs may be less flexible and are better for temporary or remote offshore or nearshore employees.
However, an EoR does provide greater flexibility for businesses that rely on temporary workers or want access to talent in other regions.
How To Choose Between EoR and PEO
Now that you understand the key differences between PEO and EoR, which should you choose? Here are three factors to help you decide.
1. Do you own a legal entity in the country where the employee lives?
If you own a legal entity in the country where your employees live, seeking a local PEO partner can help offload HR services in that location. This will relieve your responsibilities and let you focus on managing your team.
However, suppose you don’t own a separate entity in that country where you’re looking to hire new talent. In that case, be aware that you might face high costs in establishing new entities and laying the groundwork to comply with local laws and regulations.
In that situation, the best option would be to partner with an EoR who will serve as your legal entity and provide the foundation for compliant employment for your remote workers.
2. How many employees do you want to hire?
Many PEOs and some EoRs have minimum employee count requirements, making international hiring costly for startups and small businesses. It is crucial to know how many staff you want to hire.
If you plan to hire only a few employees in a new country, regardless of owning a legal entity, an EoR is likely the better choice.
However, as you hire more employees from a workforce-rich country, the cost usually ramps up. In that case, you may want to establish a legal entity and consider partnering with a PEO.
3. Are you hiring full-time workers or contractors?
A PEO might be the best option if you hire full-time workers. But if you are more interested in hiring temporary employees or contractors, an EoR is often the better option.
Final Thoughts
PEOs and EoRs may seem similar, but they are not the same. They each cater to different pain points.
Both a PEO and an EoR will help you with your HR duties and responsibilities, the first as a co-employer and the second as the legal employer of your workers. If you are expanding your workforce to include more remote workers based abroad, an EoR will often be the best solution if you don’t have legal entities outside the US.
If you are growing your business by hiring more remote workers, Near can help you hire highly motivated and result-driven English-speaking remote workers at more affordable salaries (30–70% less than it’ll cost you to hire locally), creating a win-win for your business and the talent you hire. You don’t have to worry about spending hours sifting through job boards and hundreds of CVs to find the right fit. And you don’t need to worry about deciding whether you’ll use a PEO or an EoR; we can handle everything for you.
If you want to get a list of pre-vetted candidates that you can interview for free, fill out this form. Most of our partners find and hire amazing talent in under 21 days.
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