Partnering with an employer of record (EOR) or professional employer organization (PEO) reduces administrative burdens, saving your small business time and money. The crucial difference between a PEO versus an EOR is the contract structure. PEOs are co-employers, whereas EORs legally employ your workforce.
However, certain situations require an EOR. Some human resources (HR) companies and PEOs have an EOR employment partner. Considering these factors, this guide explains what distinguishes the service models, compares EOR versus PEO pros and cons, and provides examples.
EOR vs. PEO: Key differences
The difference between PEO and EOR costs is minimal. However, PEOs provide broad HR support for U.S. employees, whereas EORs generally assist with international hiring.
Here's a quick comparison of employer of record versus PEO solutions:
- Structure: An EOR is the legal employer for staff and contractors hired through the service, whereas a PEO co-employs your workforce.
- Risks and liabilities: PEOs and clients share some liabilities, while EORs assume full employment-related responsibilities.
- HR services: EOR HR focuses on international employment and compliance tasks, whereas PEOs support a broader range of HR processes.
- Insurance: While PEOs prioritize comprehensive coverage and benefit options, EOR insurance varies by region and emphasizes compliance.
- Costs: The service models have comparable fees. Beyond PEO versus EOR cost factors, the value varies depending on your company's needs.
[Read more: What to Consider Before Taking Your Business Global]
What is an EOR?
An EOR is a third-party workforce services vendor. EOR companies maintain global entities or partnerships, allowing them to employ a multinational workforce and comply with complex labor laws, compensation structures, and legal requirements.
While registering in a U.S. state to hire full- or part-time employees is manageable for a small business, the process is more complicated for overseas locations. EOR companies become the legal employer in regions where a business doesn't have a local entity.
As part of your binding agreement, the EOR assumes full legal responsibility and liability for foreign employment-related issues, including hiring contracts and documentation, tax regulations, and disputes or claims.
What is a PEO?
A PEO is a full-service HR provider that co-employs your workforce. It assumes the role of the health insurance plan sponsor to offer comprehensive coverage and oversee payroll and compliance. You retain control over daily operations, whereas PEOs handle most HR administrative functions.
Typically, PEOs don't deal with the hiring process. However, some providers offer PEO EOR services for businesses needing global support. These usually involve a partner organization. Alternatively, you could use a global PEO EOR, meaning a global employment organization (GEO) like Deel.
[Read more: Everything Your Small Business Needs to Know About Choosing a PEO]
A PEO uses a co-employment model, whereas an EOR is the sole employer in areas where you don't have a legal entity.
What's the difference between an EOR vs. a PEO?
The main distinction between these services is that an EOR legally employs workers in states or countries on your behalf where your business isn't registered. In contrast, your business typically must be registered in locations where it uses a PEO, and the PEO co-employs your workforce for administrative purposes.
While some similarities exist, and certain providers cross over into PEO EOR territory, PEOs generally offer more expansive services than EORs. The following information details five significant differences between PEO and EOR companies.
Structure for an EOR vs. a PEO
A PEO uses a co-employment model, whereas an EOR is the sole employer in areas where you don't have a legal entity. Employees sign a contract under a PEO agreement that lists your company's name and the PEO's.
Meanwhile, with an EOR employment arrangement, new hire agreements only list the EOR provider. The EOR is legally the full employer on record for employees for all matters. Conversely, a PEO is an employer on record only for administrative purposes, such as filing payroll taxes or administering workers' compensation. Both models usually allow EORs or PEOs to claim employees under their employer identification numbers.
Consider how either arrangement impacts your HR policies when comparing EOR versus PEO structures. An EOR employee adheres to policies designed by the EOR company. You retain control over most HR procedures when using a PEO.
Comparing EOR and PEO risks and liabilities
As the sole employer, EORs assume total legal responsibility and liability for employment matters. In comparison, you share some risks with PEOs but are ultimately responsible for workplace disputes and local regulations.
An EOR provider manages direct employment legal and compliance risks. They're responsible for meeting labor law standards, complying with tax regulations, mediating disputes, and handling workplace safety. If an employment-related legal issue arises, the EOR manages and resolves it.
On the other hand, a PEO addresses labor law, tax compliance, payroll, and HR, but you manage your workplace and are responsible for providing accurate time cards and tax data. As co-employers with shared liabilities, both parties could be named in legal disputes, and penalties could be divided between them.
Understanding PEO vs. EOR services
Generally, PEOs provide a broader range of HR services than EORs. The EOR employment model focuses on international HR compliance, whereas PEOs expand beyond payroll and benefits to recruitment support and employee development.
PEOs usually provide an HR information system (HRIS). The software and HR services integrate with your workflows when onboarding new hires or updating wage information. The EOR employment model may offer software, but the vendor manages most aspects internally.
For example, as a PEO client, you'll still handle the hiring and onboarding process, and then the PEO will enroll them in benefits and set up payroll. In contrast, once you select a candidate, a new EOR employee will do everything through the EOR provider.
EOR payroll also differs because EORs can handle global payments, including staff salaries and bonuses. Not all small businesses or PEOs can navigate the challenges of cross-border compensation.
Differences between PEO and EOR insurance options
When comparing PEO versus EOR insurance, consider how management and selection differ. PEOs handle domestic benefits, whereas EOR insurance ensures local compliance in international regions. EOR providers typically choose plans and coverage, although you might be able to offer some input. In contrast, you have control over your employees' PEO health insurance and retirement options.
Most PEOs administer retirement plans, life insurance, and disability coverage. While EORs may offer and manage similar plans, the scope and types vary depending on local market conditions. Both types of companies provide workers' compensation insurance and manage claims.
[Read more: 12 Wellness Benefits You Can Offer Employees]
Evaluating PEO vs. EOR costs
PEO and EOR employment models have similar fee structures; however, long-term costs vary, and the value for the money depends on your needs. Typically, EORs and PEOs charge a percentage of total payroll, a flat per-employee rate, or a combination of both. This fee usually includes several HR services, such as costs for employee benefits, workers' compensation insurance, payroll processing, and compliance management.
Since an EOR provider handles the administrative setup, initial expenses are minimal. Conversely, a PEO integrates more deeply with HR systems. Businesses may incur training or onboarding costs.
Over the long term, PEOs provide excellent cost benefits due to lower insurance premiums, time savings from outsourcing HR administration, and decreased hiring expenses from improved retention rates. On the other hand, EORs offer more flexibility to scale a global workforce quickly with project-based or short-term workers.
PEO or EOR: Which service should you choose?
The bottom line is that you don't need a legal entity to hire contractors internationally, but you must have one established to employ part-time or full-time workers. This factor is the main difference between PEO and EOR services.
With that said, plenty of small businesses want comprehensive insurance benefits and HR support for their U.S.-based company while they expand their workforce internationally. In this case, choosing between a PEO, an EOR, or other options is more complex.
Analyze your business situation and requirements
Whether you're expanding your workforce or focusing on employee retention, assessing your current and future needs is the best way to choose between a PEO, EOR, or other solutions, like human resources outsourcing (HRO) or an administrative services organization (ASO).
Here are a few questions to compare EOR versus PEO services:
- Do you plan to hire in multiple U.S. states or foreign countries? Registered agent services help companies meet U.S. state foreign qualification requirements. Use a PEO to hire remote employees domestically. International laws are complex; the EOR employment model is a better option for hiring globally.
- Are you focused on workforce growth or flexibility? Companies with seasonal, project-based, or temporary staff benefit from EOR services, whereas PEOs support long-term goals like employee development, retention, and growth.
- Do you want standard insurance or comprehensive coverage? EOR insurance is cost-effective, but you may not have control over plan options. PEOs allow employers to choose insurance and retirement benefits to attract and retain employees.
What type of HR services do you need? EOR HR functions include payroll processing, compliance, and benefits administration. PEOs provide a complete HR suite and are better suited for companies needing more HR support.
[Read more: 8 AI Tools to Improve Financial Planning for Your Business]
Consider a PEO vs. an EOR: Pros and cons
When your small business outsources HR tasks, your whole team can benefit. It reduces administrative burdens, helps staff get paid on time with fewer errors, and improves self-service features or insurance and retirement coverage. Yet turning over processes to a third party isn't without risks.
Compare the following EOR versus PEO advantages and drawbacks:
- Pros: EOR employment eliminates liability issues, while EOR payroll and HR management substantially reduces administrative burdens. As a result, small businesses can scale up or down with minimal risks. Meanwhile, an integrated PEO HRIS streamlines the employee lifecycle while providing affordable, high-quality benefits that can give companies a competitive edge.
- Cons: Clients have less control over an EOR employee contract, insurance, and HR policies. Different policies between domestic and international teams could cause tension and affect resource or project management. Global PEO EOR services vary, typically making PEOs less suited for international hiring. There are also tax implications.
[Read more: How to Leverage a PEO to Help Grow Your Small Business]
The best PEO and EOR providers
Choosing between PEOs or HR outsourcing companies is challenging when providers offer overlapping services. If you need PEO EOR services, compare vendors by looking at whether they provide EOR in-house or through a third party. This factor could be a key PEO EOR difference in your experience and service delivery.
See the following examples of domestic PEOs, EOR providers, and GEOs:
- Deel: Tagged as the all-in-one global people platform, Deel offers PEO, EOR, and HR services in the U.S. and over 150 countries.
- Justworks: This technology-first payroll and PEO solution has local entities in 11 countries and partnerships in over 100 for EOR services.
- Papaya Global: With EOR support in over 160 countries, a workforce operating system, and global payments capabilities, Papaya Global manages pay for your entire team.
- Insperity: An IRS-certified PEO, Insperity provides comprehensive medical, dental, and vision insurance, a designated HR specialist, and a feature-rich online platform.
- Remofirst: This EOR company lets you hire and pay international employees in 180 countries with one click.
- TriNet: Small businesses use TriNet PEO to access major medical plans, streamline compliance, and mitigate risks.
CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.
CO—is committed to helping you start, run and grow your small business. Learn more about the benefits of small business membership in the U.S. Chamber of Commerce, here.
