What is the difference between an EOR and PEO?

Elements Global Services answers all the questions you may have about Employer of Records and Professional Employment Organisations.
By: | December 16, 2021

Both EOR and PEO are employment solutions, but that is where the similarity ends. An EOR does more than simply handle HR outsourcing. Its core function is to help companies employ overseas by removing international expansion barriers through its network of local entities worldwide.

What is an EOR?

An Employer of Record (EOR) is an organisation that manages the legal, HR, tax, and local compliance responsibilities of your employees in any country where you lack a legal entity. An EOR accelerates the process of employing overseas in a more cost-effective way than creating and managing dozens of local entities.

How does an EOR work?

When you partner with an EOR, you enter into an agreement that allows the EOR to employ the staff through its local entity legally. An EOR can onboard, manage and pay staff on your behalf, whether it is a six-month assignment or a permanent position. As the legal employer, the EOR takes full liability of employees and minimises any risk to the client. It ensures full compliance in every country where the company places employees.

Consider it the legal employer while you retain the role of managing employer. For example, when you need to hire a team across various European countries – you simply provide the EOR with information about who and where and the remuneration details. The EOR then navigates the local laws and handles all the paperwork for onboarding the employees. This frees you of the cost, time, and distraction of bureaucracy. More importantly, it allows you to focus on growing your business.

What is a PEO?

A Professional Employment Organisation (PEO) facilitates and manages part of a company’s HR processes, including payroll and benefits like healthcare, dental and vision, and sometimes hiring and staff training.

This is helpful to some SMEs when they do not need a designated HR team to support their staff. It also allows you to offer your employees benefits like pension, health, and dental plan options, which may not have been available without the use of a PEO service, allowing smaller companies to access a greater level of benefits. This is possible because a PEO can aggregate the employees of their companies, affording them greater negotiation power. This saving is then passed on to their clients.

How does a PEO work?

When you work with a PEO, you sign a co-employment agreement which establishes a co-employment relationship and contractually allocate and share the employer’s responsibilities and liabilities. This legally ensures that while the PEO facilitates part of your HR requirements, they will only alleviate some of the risks.

What is the difference between an EOR and a PEO?

An EOR is suitable for any business planning to expand its operations and employ overseas staff in a fully compliant and rapid manner. An EOR is a direct employment model, which takes on the risk while the client organisation runs the day-to-day operations. This is a key difference between an EOR and a PEO.

An EOR facilitates the global expansion of a company by providing visa compliant placement of employees in countries where the company is not incorporated. However, it is worth noting that an EOR cannot guarantee the approval of a visa application.

An EOR also assists with the onboarding of local employees and helps remit wages and withholdings for employees across the globe. Lastly, an EOR reports, collects, and deposits employment taxes to local, state, and federal authorities.

Businesses seeking to offload some HR duties for employees located in the same country where their business is registered are more aligned with a PEO. A PEO is a co-employment model that shares the risk with the client organisation, who also runs day-to-day operations.

A PEO facilitates the remittance of wages and withholdings of worksite employees but cannot facilitate global employees in countries where the client company is not already incorporated. A PEO reports, collects, and deposits employment taxes to local, state, and federal authorities; however, shared liability may lead to disputes over legal exposures and risks.

A PEO supports employees through various benefit schemes but only acts as a service provider for HR-related tasks, rather than a partner in a company’s global expansion strategy. A PEO also has to leverage third-party vendors to handle various payroll administration and tax responsibilities.

Should I use an EOR or a PEO?

Several factors come into play when deciding between an EOR and a PEO. Using a PEO is easy when all employees are in a single state, but as a company expands and sees the opportunities in other states, it becomes a whole new challenge. The business may need to register itself in every state it wishes to employ in.

An EOR is 100% legal and operational in 160+ countries worldwide to solve your business needs. If your business wants to hire employees globally, PEO is not the solution in major economies like France and Brazil.

How can Elements Global Services help?

Expanding into new markets requires three key elements: time, cost, and expertise. The complexities of global, regional, and local compliance require a trusted partner, like an Employer of Record (EOR), to break down the barriers to global expansion and drive successful revenue growth.

As an EOR with entities in over 160 countries, Elements Global Services can handle your international HR and payroll, local tax and compliance, benefits administration, visa, and mobility needs. We empower you to dedicate your focus to growing your business.

For more information on Elements’ EOR solutions, click here.