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Professional Employer Organization (PEO) VS Employer Of Record (EOR)

Professional Employer Organization (PEO) VS Employer Of Record (EOR)

Tapping into international talent is the key to success in an ever-evolving business landscape. Companies with a global workforce benefit from increased diversity and cultural competence as well as enhanced combined skills and experience, all of which can be used as a strategic edge against competitors.

However, international recruitment isn’t so simple, and hiring across borders requires businesses to comply with a range of local and global employment laws. More often than not, employers lack the time and resources to handle these complex legal requirements internally.

Human Resources (HR) is the backbone of any successful company, and many looking to hire international talent choose to outsource a Professional Employer Organisation (PEO) or an Employer of Record (EOR). PEOs and EORs help streamline a business’s HR operations, making sure payroll systems are compliant and that employees are legally covered by local insurance.

In this article, we are going to make sense of these two services and their functions to better understand which is the most appropriate solution for your particular business:

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1. What is a Professional Employer Organisation (PEO)?
A Professional Employer Organisation (PEO) is a company that partners with a business to handle all HR-related tasks on behalf of the organisation. Acting as an outsourced HR department, the PEO will process payroll, oversee taxes, and maintain worker’s compensation coverage, healthcare, and benefits for a company’s employees.

A business and a PEO establish a co-employment relationship with one another, sharing employment and HR responsibilities. The core business keeps full ownership of the company and maintains all related liabilities, handing over only HR, tax, and employee benefit related tasks to the PEO. By designating specific duties to a PEO, your business can focus on what it does best, directing its resources in the most cost-effective way possible.

2. The advantages of a PEO
  • Co-employment partnership: By handing over payroll, registration, insurance, and legal admin to the PEO, the company will be spared from hiring a costly in-house HR team. However, the company will remain responsible for the day-to-day affairs of the workforce.

  • Improved workers benefit packages: With the help of a PEO, small and medium-sized enterprises (SMEs) can offer their workers more robust employee benefit schemes, usually only offered by larger organisations. For example, a PEO can do this by pooling its employees from various companies to apply for better insurance rates.

  • Reduced liability: The core company will benefit from reduced liability when entering a PEO relationship. For example, many PEOs offer workers compensation and insurance against employment liability. Certified PEOs even provide insurance coverage for tax liability and penalties, offering SMEs a degree of financial protection they might not otherwise receive.
3. What is an Employer of Record (EOR)?
An Employer of Record (EOR) is an organisation that oversees all employment-related activities for a business. Typically a function of a recruitment company, EORs are experts in country-specific fair labour acts and employment-related laws, making them a one-stop-shop for international recruitment.

EORs are sub-contracted to take responsibility for a company’s timekeeping, benefits, payroll, and insurance, taxes, and other legal proceedings related to their employees, be they permanent or contracted employees.

4. The advantages of an EOR
  • No need for location registration: Small companies looking to hire internationally tend to prefer EORs because they allow businesses to hire from states and countries where they are not yet registered. Registering a company abroad can be a tenuous task, and using an EOR can help bridge this business registration gap.

  • Varied talent and team sizes: EORs accommodate different types of talent, including full-time, part-time, seasonal, contract, and freelance employees. They are also willing to work with companies with as few as one employee to companies with hundreds of employees.

  • The EOR assumes full legal responsibility for your employees: Since EORs are the legal employer on behalf of a company, an employee’s liabilities sit with the EOR and not with the core company. In other words, your employees will be covered under the EORs general liability and workers compensation insurances, ensuring employees are protected for certain damages, illnesses, or injuries on duty.
 
5. PEO vs EOR?
As both PEO and EOR act as an HR extension of a core company, the terms are often used interchangeably. The main difference between the two is the extent to which they function:

A PEO takes on board all of a company’s employees to oversee all HR and payroll-related tasks, while an EOR allows a business to outsource only part of its HR tasks. For example, an EOR could assist your HR team by overseeing seasonal workers, interns, contractors, and foreign employees, while a PEO could replace your entire HR team and manage your workforce on your behalf.

When we compare PEOs vs EORs, PEOs are commonly used for companies with over ten full-time, permanent employees. In contrast, EORs are the preferred option for SMEs with a more varied workforce. EORs help manage fluctuating workforces such as seasonal workers and contractors while offering a degree of insurance coverage that PEOs do not.

EORs are suited to companies looking to hire across state or country lines without being registered in those locations. Hiring a PEO requires you to register your business in every place with resident employees. In contrast, with an EOR, you will only have to take on that responsibility when you decide to hire permanent staff in that location.  
6. Final Words
In conclusion, PEOs and EORs can help businesses navigate the complex global hiring environment. The type of HR assistance you bring into your company will depend on various factors.

EORs assume the role of a full legal employer of a company’s workforce, while a PEO remains a partner in co-employment. If you’re looking to hire a flurry of short-term employees, an EOR will prove more beneficial to you. However, if you’re looking to outsource every HR function in your company, a PEO will gladly rid you of the burden.

Generally speaking, PEOs improve the entire HR function of large and already established companies, while EORs are better suited for companies planning to expand their workforce across borders quickly.