PEO vs EoR: Which is right for your business?
Exploring the differences between a Professional Employer Organisation and Employer of Record
In the race to hire global talent, many companies decide to work with partners that make employing international workers more straightforward. Two such arrangements are a Professional Employer Organisation and Employer of Record – or PEO vs EoR.
But what is the difference between PEO and EoR? Unfortunately, you might often see the two used interchangeably – even though there are important differences. And, when industry jargon is used misleadingly, HR professionals might be put off using something that could benefit their global operations. A Global Workplace Analytics study found that hiring remote workers can save companies up to £9,000 per employee annually, for example.
As such, the effort to understand PEO vs EoR can pay off in multiple ways. Companies using suitable services can streamline their employment processes, conquer compliance and expand into new markets quickly.
To understand PEO vs EoR, firstly we should look at each term individually:
What is a Professional Employer Organisation (PEO)?
The term PEO describes a relationship whereby a global services provider takes over the employment of a client’s worker. They look after certain employment and human resources responsibilities, such as:
- The remittance of workers’ compensation
- The provision of a local employment contract
- Any HR needs on a day-to-day basis.
Meanwhile, the client retains control over the employee’s day-to-day activities. Crucially, the client will already have sourced the staff prior to engaging with the provider and will continue to be responsible for their employee, abiding by local labour laws throughout the relationship.
This type of arrangement involves a contractual relationship between the client and service provider, known as co-employment. This means that the client must have a legal entity in that location. This added responsibility is the first difference between PEO vs Employer of Record.
What is an Employer of Record (EoR)?
So, what is an Employer of Record, and how are they different from a PEO? An Employer of Record (EoR) services provider employs a client’s workers in countries where they don’t have their own local entity. Legally, the worker is employed by the EoR.
As with a PEO, an Employer of Record provider handles:
- HR responsibilities
- Payroll processing
- Employee benefits like health insurance.
Additionally, the EoR manages contractual needs and regulatory compliance with local employment laws. EoR services can give companies the peace of mind that all local regulations are being properly upheld. With this contractual relationship, the EoR has a service agreement with the client, as well as a separate employment contract in-contract with the employee.
So, what is the difference between PEO and EoR?
These definitions highlight some small but significant difference between PEO and EoR. Both handle HR functions and take some hassle out of employing international workers – but EoRs go the extra step by employing the workers on behalf of their clients.
With a PEO, the client must have a legal entity in that country – with an EoR, they do not. This is, perhaps, the key difference between Employer of Record vs PEO.
Who is responsible for compliance?
As your Employer of Record legally employs your workers in other countries, it is also responsible for compliance with local laws and customs. The EoR services provider is the employer, after all. In this way, working with an EoR lets you hire overseas talent without needing a legal entity or local law knowledge, keeping your business compliant without the need for time-consuming research and planning.
With a PEO, you’ll be able to hire workers in other countries, but you will also have to have a legal entity that complies with local laws – working with the PEO in a co-employment relationship.
So, do PEO and EoR provide the same services?
Effectively, a PEO and EoR provide similar day-to-day services. They can both handle HR tasks, benefits administration, global payroll and employment assistance. However, the PEO services provider will typically take on fewer legal responsibilities for their client company. In many cases, they may not have the same compliance knowledge or expertise as an EoR – simply because that is not a service they provide.
If remote working is a key part of your international team and global expansion strategy, then your choice of PEO vs EoR will come down to which best fits your current situation and future plans.
EoR vs PEO – Which is right for your business?
The subtle difference between EoR and PEO means that it might be tricky to choose between the two. To help you decide, consider the following questions.
Have you registered as a local entity in your employee’s country?
Your business registration is a key factor in whether a PEO or EoR is the right choice. While both can act as an HR department (and more) for your global workforce, you’ll have to do more when working with a PEO.
That’s because, with a PEO, you’re required to set up a legal entity in that country and act as a co-employer. For companies with limited time, expertise, or financial resources, this can prove a significant hurdle. If you already have an established presence in that country, a PEO may be a good choice.
If you have an entity in your chosen country, there is no need for an EoR. An EoR is an employment mechanism, rather than a means to avoid tax or other burdens.
How many employees will you hire?
The next question is – how many employees are you looking to hire in each country? This is an important question for two reasons:
- Some PEOs and EoRs might require a minimum number of employees.
- A larger workforce may change what’s best for your company.
In general, it can be tricky, time-consuming and expensive to open a legal entity in another country. Many businesses – such as startups and medium / small businesses – might not employ enough workers to justify those costs.
On the other hand, an employer looking to hire many workers may be more willing to go through the process of establishing separate entities in many countries. However, even when hiring a larger number of workers, an EoR can save you from taking on these additional responsibilities.
Do you want to handle employee contracts directly?
This difference is more of a company preference: Do you require direct control of contracts between you and your employees? A PEO might allow you to have a direct contract with your employee. For companies that don’t mind the additional compliance requirements, this can be a good choice.
For others, employing a worker contracted to an EoR is an excellent balance of contractual requirements and flexibility. The EoR acts as the legal employer, so it handles all local employment arrangements as part of the onboarding. That’s not to say the client has less influence – there will be a service agreement in place between them and the EoR. It simply means that the EoR handles the local compliance side.
Essentially, the argument comes down to whether or not you have an entity in that country. If you do, you will have to take the PEO route regardless.
Getting your global payroll right
To decide between PEO vs EoR, it’s vital to consider the subtle differences. With both, you’ll receive similar day-to-day HR services. However, working with a PEO means you’ll also have to establish a legal entity in that country, and comply with all local laws.
That’s why, in many cases, the flexibility, convenience, and peace of mind of working with an EoR services provider is the deciding factor. For more information on Mauve’s global Employer of Record services, get in touch today.
The information provided has been checked for accuracy as of the date of publication, and is intended as a general guide and for information purposes. It is subject to unanticipated and unexpected changes and does not constitute legal advice.