PEO vs EOR: Which is best for your business?

Hiring employees abroad opens your business up to a global pool of talent. But it’s not without difficulties.

An Employer of Record (EOR) and a Professional Employer Organization (PEO) ease this process. Both an EOR and a PEO handle cross-border HR functions. But they have some key differences that can impact your business.

Let’s look at PEO vs EOR and see which one is best suited to your business.

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PEO vs EOR: What's the difference? Should your business choose PEO or EOR? Save time and money with Wise

PEO vs EOR: What's the difference?

An EOR is a third-party organization that simplifies international onboarding. An EOR is the official employer of your foreign employees. This means they have the legal responsibility for following foreign employment laws.

An EOR specializes in ensuring compliance with foreign labor laws. They also perform a range of HR functions, such as:

• Tax filing
• Employee benefit administration
• International payroll
• Employee contract creation and termination

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In contrast, a PEO is a third-party organization designed to outsource your HR needs. This gives your business more time and resources to focus on its key tasks. It performs many of the same HR-related tasks as an EOR.

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The main difference between a PEO vs EOR is legal liability.

With an EOR, they’re legally responsible for your employees. This is because they’re the official employer—not you. But with a PEO partnership, you enter into a co-employment agreement.

This means your business is still the one with legal liability for its employees. Likewise, this also means you’re responsible for setting up your own entities abroad.

EOR vs PEO: Key differences

Now that we’ve covered the basic difference between an EOR vs PEO, let’s take a look at some further differences between the two.

• PEOs require you to have local entities.

Wherever you want to hire, locally or abroad, you’ll need to register your business when using a PEO. This means you need to establish your own entities in all the countries where you want to hire employees. For this reason, PEOs can be better suited to larger businesses.

Large businesses have the capital to invest in overseas entities. Large businesses wanting a long-term presence abroad would benefit greatly from a PEO. In contrast, an EOR is better suited to small businesses. An EOR doesn’t require you to have local entities, as they’re the official employer. This means international onboarding is more budget-friendly.

• An EOR is the faster option for international hiring.

Setting up overseas entities is a long and expensive process. You’ll need to ensure your compliance with local regulations. This means you’ll need local legal experts, as well as financial and HR support.

The bureaucracy involved can also be time-consuming. An EOR avoids this process. They already have established entities in most countries. This allows you to instantly begin hiring global talent. This makes it the faster option compared to a PEO, which requires that you already have entities abroad.

• A PEO partnership has more legal risk involved.

When working with a PEO, you enter into a co-employment agreement. This means you are legally responsible for your employees. In contrast, when using an EOR, they are the official employer of your foreign employees.

As the official employer, they’re the ones who are legally responsible for maintaining compliance. Therefore, you have more legal liability when partnering with a PEO than with an EOR. This is something to consider, depending on how much risk your business is ready to take.

• A PEO is better for managing full-time employees.

Because a PEO enters into a co-employment agreement, your business relationship with them is designed for the long-term. A PEO outsources your entire HR department. They perform a range of different tasks, from payroll to benefits administration.

For this reason, they’re better suited to handling employees who work full-time. They’re also the better choice for businesses with a large amount of employees, as PEOs often apply minimum employee counts to qualify for a partnership. An EOR, on the other hand, can be a better option for those looking either to hire abroad seasonally or hire part-time workers.

Just like a PEO, an EOR performs HR functions. But it also handles the legal aspects of global onboarding. This means an EOR is better suited for short-term or part-time workers, as there are less costs involved in entering new markets.

This also means that an EOR is the better choice if you’re looking to hire only a few employees across many different countries.

• EORs can be more cost effective than PEOs

Both PEOs and EORs charge either a flat fee per employee per month or take a percentage of your payroll. But, EORs cover the costs of your employee benefits and insurance.

This can save you a significant amount compared to using a PEO. And of course, they also save you the cost of setting up local entities abroad.

Should your business choose PEO or EOR for international employees?

When choosing whether to go for a PEO vs EOR, it all comes down to your business and its goal.

If your business has established entities abroad, or is planning on having a permanent foreign presence, then a PEO could be the way to go. Likewise, if you have a significant amount of foreign employees, who also work full-time, then a PEO could be an excellent choice for supporting your needs.

Just keep in mind that you need to be ready to take on the legal responsibilities of complying with foreign labor laws.

On the other hand, if you’re a small to medium-sized business looking to benefit from global talent, then an EOR could be your best bet. An EOR will give you instant access to foreign workers, while allowing you to hire across multiple different countries with ease. It’s a great option for businesses who want to hire seasonally, as it gives you flexibility in where and when you hire.

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