What Is the Difference Between an EOR and a PEO?

Posted on: January 3rd, 2024 by

You have two options when looking to outsource recruiting and hiring to a third-party partner – PEO and EOR companies. It’s important to understand the differences between these two options to ensure you work with the right type of company to address your specific needs.

What Is a PEO Company?

A professional employer organization (PEO) is a company that provides comprehensive HR services to small and medium sized businesses. PEO companies act as a co-employer that handles any HR tasks that you want to outsource. This may include:

If your business is looking to outsource the hiring of full-time, permanent employees in your local area, a PEO company may be an excellent option.

Keep in mind that PEOs function as a partner company and aren’t considered the employer of the staff they help you hire. Outsourcing hiring to a PEO company takes this responsibility off the plate of your internal team, but your company is still responsible for all legal and day-to-day operations, including registering your business anywhere you recruit and hire employees.

What Is an EOR?

what is an EOR?An employer of record (EOR) is a company that handles all employer-related responsibilities for businesses in areas where they aren’t a registered entity. EORs are the full legal employer of your company’s workforce, and they manage all HR-related tasks for your employees, including:

If you’re looking to hire the best talent regardless of geographic location, working with an EOR provides the flexibility to recruit employees in any market around the world without the need to register your business in that location.

Key Differences Between a PEO and EOR

There are several key differences between a PEO and EOR, and understanding these differences is critical when determining which option is right for your business.

Structure

A PEO company is a co-employer. They are a third-party that handles any HR tasks you outsource to them. When they assist you with hiring matters, your company will be the employer for any candidates they assist in hiring. Your team will have final say over all HR-related matters associated with these employees, and the PEO company will facilitate the implementation of these HR items.

An EOR is a full legal employer. They are a third-party company that acts as the employer for your workforce in areas where you don’t own an entity. This means you have less control over HR-related matters associated with these employees, but these items will be managed by your EOR, ensuring these employees have access to high-quality benefit plans and an HR team with expertise in the local labor laws of the areas where your employees live.

Scope

When you work with a PEO, you are outsourcing your HR department to this company. They will provide all agreed upon HR services to your employees. Since they don’t act as the employer for your team, your company is still responsible for compliance with all labor laws governing the location where your business owns an entity.

When you work with an EOR, they take over your role as employer. EORs will have the extensive knowledge of the local hiring laws in the regions where your team lives – both in the United States and internationally – ensuring that all compliance matters are handled properly. Since the EOR is technically the employer for your team, they will be responsible for compliance with all labor laws.

Scale

Since PEO companies are a dedicated third-party partner that handles your outsourced HR needs, they typically offer greater value to small and medium sized companies who primarily have full-time employees. Since the EOR functions as the employer for your team, they provide greater value to businesses who often rely on temporary employees or who are looking to hire individuals who live in other locations where your business isn’t a registered entity. That being said, EORs can still provide excellent value to businesses who have full-time employees, especially when they use a remote workforce spread across the country or around the world.

Risk

difference in compliance risk associated with PEO vs EORAs a co-employer, PEO companies share responsibility over potential employment liabilities with your business. They have extensive experience managing these risks and can help you minimize the likelihood that any liability issues will develop. However, they don’t eliminate these risks for your business since you will still share liability with them.

Since the EOR acts as the actual employer of your team, they assume all risks associated with employment liabilities related to the services they provide for your team.

Need for a Legal Entity

Since you are still considered the employer when you work with a PEO, your business must have a legal entity anywhere your employees live. This is not the case when you work with an EOR since the employment of your workforce is registered under the EOR’s legal entity. Therefore, an EOR provides an ideal solution if you’re looking to expand your talent pool to regions where you don’t have a legal entity.

Which Option Is Right for Me?

In most situations, the right solution for your business will depend on whether you have a registered legal entity in the region where you’re looking to hire talent. If your entire workforce resides in regions where you have a legal entity, then a PEO company will typically be the ideal solution. In this situation, the PEO will partner with you as a co-employer and take over all HR-related tasks for your team.

However, if your business is looking to hire talent in new locations where you don’t have a registered entity, an EOR allows you to seamlessly employ individuals in these locales without the need to set up a new registered entity.

PassioHR Can Provides Comprehensive PEO Services for Your Business

If you’re looking to outsource HR services to a PEO company, PassioHR can help. We provide comprehensive PEO services to small and medium sized businesses in a wide range of industries, and we have the expertise to manage just about any HR-related function you need assistance with.

You’ll benefit from our Elevated Engagement Plus™ Approach focused on helping you create a more successful and inspired organization. As part of this approach, we’ll spend time with your team to understand your unique HR needs, workforce dynamic and company culture. This allows our team to recommend a customized plan tailored to the specific services you need. With our Elevated Engagement Plus™ Approach, you’ll have the ability to outsource any HR tasks that don’t make sense to manage internally, while retaining the flexibility to retain other HR responsibilities in-house.

Contact us today to schedule a free consultation.

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