EOR vs. PEO: Does your business need an EOR or PEO?

Discover the ultimate guide to selecting the perfect Employer of Record (EOR) platform for your business. Equip yourself with the knowledge needed to make an informed decision and ensure smooth international hiring and workforce management.
EOR vs. PEO: Does your business need an EOR or PEO?
Written by
Mayank Bhutoria,
June 18, 2024

Key Takeaways

For firms to grow globally, there are three key components which play a crucial role; hiring the right international talent, managing the local compliance and processing payroll.

With more and more workers going remote, companies find it more within their means to grow globally remotely. While on one hand work collaboration is at an all-time high, the steps of hiring remotely, managing compliance and processing payroll have additional nuances in the international space.

To tackle the created barriers for recruitment teams across borders, services like EOR are a straightforward solution, and to only manage HR related functions like Payroll, compliance and benefits, PEO is a preferred solution.

In this blog, we’ll discuss the differences between PEO and EOR and help you choose the right one  for your business.

What is a Professional Employment Organization (PEO)?

A PEO can be defined as a third-party organization that offers end-to-end HR-related functions to a company. PEOs manage HR functions like payroll, tax and benefits for companies but do not act as a legal employer on behalf of the company. In short, with PEOs, it’s like a co-employment arrangement between the company, the PEO, and the employees. You must own legal entities in countries you want to hire to work with PEOs.

Here are the services covered by PEOs.

  • Payroll processing
  • Regulatory compliance
  • Employee benefits administration
  • Tax deductions and reporting.

What is an Employer of Record (EOR)?

An Employer Of Record is an entity that acts as the legal employer for an organization. EORs take the legal responsibilities of an employer and help companies hire in countries where they don’t own legal entities. In short, with EORs, you can hire across countries without establishing legal entities. 

EORs handle all HR and employer-related responsibilities. They offer the following services:

  • Hiring and onboarding
  • Payroll and labor law compliance
  • Employee benefits administration
  • Taxes and reporting.

EOR vs. PEO: What is the difference?

Differences PEO EOR
Scope Acts as a co-employer Acts as a legal employer on behalf of the company
Hiring Requires companies to own legal entities for hiring globally Allows hiring in multiple locations without establishing a legal entity
Responsibilities Manages HR-related functions like payroll, taxes, employee benefits, compliance Manages HR and employer-related functions like hiring and onboarding, payroll, taxes, employee benefits, and compliance.
Cost Incurs higher cost in the long run Cost-effective in the long term
Scale Best for small companies with full-time employees Works for SMEs, enterprises with full-time employees and contractors
Risk Shares employer liabilities Reduces employer liabilities
Degree of control Greater control as employers must supervise HR functions Lesser control. However, HR functions require supervision.
Insurance No insurance coverage for employees Get compensation and localized benefits for employees across countries.

Both PEO and Employer of Record are associated with a few common terms like onboarding, payroll, HR outsourcing, and benefits. However, they are not the same. 

The main difference between an EOR and a PEO is that the EOR enables companies to hire from countries where the employer does not have a local entity. The employer onboards the talent onto the EOR's entity and thus the EOR becomes the primary employer for the employee while the client (the employer here) simply manages the employee's day-day affairs. 

On the other hand, a PEO acts as a co-employer. They share HR responsibilities with the client. For example, the employer processes payroll and administers benefits for employees while the other aspects such as onboarding are carried out by the client. 

From a bird’s eye point of view, EOR manages everything - from payroll, employee taxes, legal liabilities across several countries, simplifying and making your HR management seamless. .

Working with a PEO can be useful for those companies that have some presence in an area but it's limited in meeting the needs of their employees. EOR services have a wider depth and usually come in better packages. Working with an EOR also has the advantage of hiring workers and this is usually done through a service contract. The EOR simply represents the employer on paper to help you hire employees where you do not have a legal entity.

Before we get into the detailed differences between Employer of Record vs. PEO, here are a few distinctions between the two in terms of cost, scope, structure, and more.

Cost - PEO results in higher costs in the long run whereas, EOR incurs lower long-term costs. 

Structure - The structural difference between PEO vs. EOR is that PEO is a co-employer and EOR is a complete legal employer. 

Scope - PEO services share responsibilities with the employer. They handle all HR functions. On the other hand, an EOR acts as the legal employer. They help you hire in a new country without establishing your own entity. 

Scale - PEOs generally work with small-sized companies with full-time employees. Whereas EORs work with SMBs, startups, and enterprises that employ both full-time and temporary employees (or contractors). 

Risk - PEO services share your liability and EORs reduce your liability by playing the employer’s role.

Control - There is greater extent of control over the employee’s employment model when working with a PEO as the company is involved in a co-employment relationship. Though the client company supervises employees on a daily basis, EORs take the required formal disciplinary action. Overall, several HR steps require the cooperation of EORs.

Insurance - In PEO vs. EOR, insurance coverage is one of the aspects that greatly differ. In PEO service, you must provide insurance for your global employees on your own. However, with an EOR, you can get compensation regardless of the country you operate in or your employees belong to. Also, EOR has much better options for risk management than PEOs. 

Which Type of Partner Should you Choose?

There are several basic factors to consider when choosing the right employee management service to invest in your business. Key criteria would include; What is your physical global presence, how many remote workers you want to hire and the duration of hire.

To help you make your decision, here are some basic questions you should ask yourselves

Is your legal entity present in the country where the employee lives?

The first question that you should ask when choosing between a PEO vs. EOR is about the presence of a legal entity in another country to expand your business.

Local legal entities differentiate between EOR and PEO. Companies need to have a local entity to be able to hire employees, which is a time-consuming process.

Partnering with an EOR offers to be a safe and efficient option for companies that want a fast expansion in other countries, but even companies that have legal entities in their target countries still may not have the resources to meet all the needs of their employees, so a PEO is required in such a situation.

What is your workforce size?

A lot of costs are involved in scaling small businesses and startups, especially when they plan to expand and hire in new locations. If you plan to start a new entity in a new state or country, choose a PEO that can join you as a co-employer and handle all HR activities in the new location. 

On the other hand, if you want to hire employees in a new place or in multiple countries simultaneously, choose an EOR. This is because, unlike PEO, EOR services take full responsibility and speed up the onboarding process. They also look after labor law compliance. 

Do you hire full-time workers or contractors?

When choosing between PEO vs. Employer of Record, consider the type of employees you have. Do you employ only full-time employees or contractors or both?

For working with international contractors, a simple contractor management and payment solution arrangement world work. Gloroots make it easier to manage contractors across the globe.

For full-time workers, a EOR arrangement works best for a compliant and end-to-end solution. PEOs work best for companies with legal entities in other countries. Gloroots can cater to both requirements with single click journey.

What can you offer your employees?

Another question that you should ask when choosing between PEO vs. EOR is about the resources you can offer to your employees.

Your current skills and resources may determine which employee management service you should choose. In some cases, companies that have a legal entity in a country may still choose to partner with an EOR, as it has a more comprehensive system for managing compliance and accountability. 

While most EORs include some hidden costs for their services, Gloroots offers a flat rate with no hidden fees and minimal costs; simple and transparent pricing.  

EOR vs. PEO: Which one should your company opt for?

Now that we've detailed exactly what a PEO and EOR do both locally and globally, here's a quick rundown to help you decide which service is right for your business.

PEOs may perform a number of HR functions, including payroll, benefits, and compliance advice, but they do not assume all of the legal obligations and responsibilities associated with it and are merely limited to the finance sections of HR department. On the other hand, EORs take legal responsibility to a reasonable degree and in effect become legal employers on behalf of client companies.  

In both cases, client companies and their agents develop and sign contractual or service agreements to describe the precise services of a particular EOR or PEO service provider.

When deciding between EOR vs. PEO consider your hiring requirements and adherence to different and unfamiliar labor laws and regulations. 

It is difficult for businesses to ensure global compliance. Also, it is expensive as not complying with relevant laws may lead to hefty penalties, legal suits, and fines. To avoid these expenses, go for Gloroots’ EOR and PEO services. 

If you are already present in the country you want to hire from, then a PEO can be a useful way to outsource certain HR functions and reduce costs. 

However, if you are looking to recruit talent in a country where you do not yet have a legal entity or are looking to manage payroll and compliance for already-hired resources, Gloroots would serve as a perfect enabler for you and your business. Get in touch with us now and hire your desired talent!

Ready to take your hiring global? Let’s talk.
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