Modern agile companies and business leaders need faster and more convenient solution models to help them expand and scale. Two of the most popular modern solutions in these cases are Professional Employer Organization (PEO) and Employer Of Records (EOR).
But what do these terms represent, and what are the differences between these two? Let’s discuss PEO vs. EOR to find the most suitable solution for you.
But first, let’s start by knowing what they both mean.
What Is PEO?
A Professional Employer Organization (PEO) is a company that takes over different client company operations by entering a co-employment relationship. A PEO will only enter an agreement with registered companies or businesses with branches in locations said business is expanding to.
A PEO mainly takes over the HR-related tasks of an organization, such as payroll management and employee hiring. Though it sounds similar to EOR, there is a fundamental difference.
Unlike an EOR, a PEO cannot serve as a primary legal employer for international workers from different regions.
What Are The Services Provided by a PEO?
Here are the services a PEO offers:
- Additional Employee Benefits (Health Insurance,
- Tax Management
- Payroll Responsibilities
- Compliance Support
- HR Administration
- Employee Training
- Employee Onboarding
- Recruitment & Hire
- Employee Contract Creation
- Complaint Management
- Co-Employment
What Is EOR?
An Employer Of Record (EOR) cooperates with an organization as a legal employer in countries with no branch. The EOR can make it possible to recruit employees without setting up a local legal entity within the region their client is trying to hire.
EOR takes full legal responsibility for employing part-time or full-time employees as remote workers and independent contractors. EOR also can take on different HR responsibilities.
What Are The Services Provided by An EOR?
Though similar to PEO, here are the services for an EOR
- Employee Benefits Management
- Payroll Processing
- Compliance Management
- Compliant Contract Management
- Administration
- Taking The Role of Legal Employers
- Work Permit & Visa Arrangement
- Creating Connection Between Employees & Government Authorities
- Legal Advisor
- Termination/ Rehiring of Employees
Core Differences Between a PEO and an EOR
Though both PEO and EOR sound highly similar in terms of functionality, there are three core differences we can point out for both these vendors.
1. Need For A Legal Entity
A PEO requires the client business to have a local entity in the case of recruitment since the PEO cannot register an employee under its legal entity. On the other hand, an EOR can allow the employment of foreign employees without setting up a local entity since the employees are directly registered under the employment of the legal entity, that is, the EOR themselves.
2. Co-Employment Vs. Outsourcing
PEO takes the role of a co-employer, which means that they collaborate with the client’s internal HR department and share the client organization’s legal liabilities as well.
In the case of EOR, the employment contract concluded between the EOR and the employee, meaning the EOR becomes the legal employer of an organization that partners with an EOR. This employment is mostly outsourced since the EOR sources international talents from different regions to work with their client organization.
3. Payment Method Toward Employees
PEO may collaborate with the client organization and share HR responsibilities, but a PEO may not always have the authority to process employee payments.
EOR, however, is allowed to manage payroll services for all the employees since the EOR is legally considered the employer of any individual employee and is legally obliged to process payroll for the employee.
Should You Partner With POE or EOR?
With all the similarities and slight key differences, deciding which partnership to choose in case you require the services might be difficult. These three factors can help you decide.
What’s The Size of Your Workforce?
Startups and scaling your current business can cost you a lot of money. The most money you can spend during this phase is on recruiting new employees. If you’ve already decided to establish your local entity over different regions, you can pair it with a PEO to save recruitment costs.
But if your organization needs to bring in the best talents without local entities, EOR can help you move things forward while saving resources.
How Large Is The Company Footprint At The Moment?
You might plan to establish a local entity in multiple regions and then use a PEO’s help to recruit employees for your organization. But all of it can be expensive, and the legal matters can become highly complex.
When setting up local entities in different regions, you have to ensure complete compliance with different local laws of different regions. To eliminate this complexity, it’s better to pair up with an EOR so they can recruit the necessary employees while dealing with legal obligations.
Which Solution To Go For?
This is where your current financial standing comes in. Are you an organization already set up multiple legal entities locally in different regions? Or are you a small startup with a limited budget that doesn’t have enough resources to take on the legal challenges of international recruitment?
If you fall in the first category, choose the PEO solution. But if you’re the latter, it’s best to partner with an EOR.
To Wrap It Up
With every company around the world aiming to be as mobile as possible, the current market is highly competitive, and the best way to stay afloat in the current market is to leverage the best option that can take the burden off of the internal teams, freeing up more space for additional activities to reach business goals.
Are you picking PEO or EOR for your company? Not sure where to start? Our professional consultants at Impala Intech can help you make the right decision.
FAQs
An EOR is your only choice if you do not own a legal entity in the employee’s country. The complexity behind setting up a legal entity varies within countries. Hence, you must consider the time and budget available if you still want to go with a PEO.
If you are looking to hire only a few employees in a country, regardless of owning a legal entity, an EOR is a popular choice. A PEO is the most affordable option if you want to hire aggressively while reducing the pressure of administrative HR functions.
EOR provides essential HR services that are perfect for temporary working relationships. On the other hand, a PEO gives you access to its entire offerings, which elevates your experience while managing full-time employees.
EOR takes the legal responsibility of employment for an employee on behalf of the organization while being fully compliant with the employment laws, so they do not require the client company to be locally established anywhere during the recruitment.
The number of local entities representing your organization and the number of employees in each branch of your organization can determine your overall company footprint.
