What is the Difference Between EOR and PEO?

What does EOR stand for in employment?

In terms of employment, an employer of record (EOR) is an HR outsourcing provider that legally employs workers in foreign countries on your behalf. EOR companies sometimes refer to themselves as international PEOs, because their services – HR management, payroll, benefits, and more – are similar to those offered by a professional employer organization.

Working with an EOR is useful if:

• You have a current employee who is moving abroad
• You are thinking of expanding globally
• You wish to hire a worker(s) who is domiciled in another country

To employ workers in another country legally, you would normally be required to establish an entity in the country where your workers are located. That process can be costly, confusing, and take months to complete. It’s also not an ideal situation if you’re ready for an employee to start working right away, or if you only need short-term help.

As the worker’s legal employer, the EOR is fully liable for complying with all workplace-related regulations in that country, alleviating the need for you (or your staff) to become experts in compliance in that location.

It’s worth noting that the term “employer of record” is used with PEOs, too. A PEO enters a co-employment agreement with its clients, and the PEO becomes an employer of record for its clients’ employees. This permits the PEO to perform HR tasks on behalf of the client. However, in this article, we’re referring to the term “employer of record” or EOR as a type of HR outsourcing provider that legally employs global workers on behalf of a company.

What is an EOR employee?

How does it work when you’ve found the perfect candidate for your company, but they live in another country? Or you want to expand globally with a small team overseas? You have two options: you can become a registered entity in the employee’s country or you can hire an EOR. The fastest (and often more affordable) solution is to hire an EOR.

After you’ve engaged an EOR, the employee and EOR agree to an employment contract, and the EOR will ensure all local workplace laws and regulations are adhered to within the contract. You may be able to customize some details such as the number of paid days off.

Then, the EOR will handle onboarding, ensuring your employee has the necessary paperwork completed to work in their specific country. They will also help them navigate other new-hire tasks such as benefits enrollment. (Note: Many EORs can provide benefits to your international employees based on the offerings you’d like to include.) If the employee requires a work visa, some EORs will help facilitate this process as well. The EOR will also set up and process payroll, even paying in the appropriate currency.

Your service agreement with an EOR will define what your responsibilities are for the employee. The EOR handles all things HR related, but you’ll still be managing their day-to-day responsibilities, assessing performance, and defining their job duties. And while the EOR is fully liable for hiring and managing employees under its service, there are some limitations. For example, if you fire an employee in a way that violates regulations in that country, you could be liable.

Is an employer of record the same as a PEO?

An employer of record (EOR) offers similar services as a PEO, but they are not exactly the same or interchangeable.

With a PEO, you enter into a co-employment agreement and the PEO becomes a co-employer with you. You retain full control of the management of your employees and of all business decisions, while the PEO handles back-office HR tasks on your behalf and shares liability with you on employee-related matters.

An EOR is the legal employer of record for foreign workers on your behalf and is fully liable for complying with local workplace laws and regulations. They handle HR administration for your global employees – from processing payroll, administering benefits, maintaining compliance, and more – and they take on the responsibility of understanding and abiding by local laws in the country.

As you’re exploring a PEO vs. EOR, keep in mind that many businesses choose both. It’s not uncommon for businesses to partner with a PEO to provide comprehensive HR services and better employee benefits for their main workforce, while also utilizing an EOR to employ one or a handful of global employees.

In fact, at G&A, we have relationships in place with EORs and can recommend a provider when our clients are growing globally.

Differences and similarities between PEO and EOR

The terms co-employment, joint employment, and employer of record are used in a variety of ways (and sometimes incorrectly) to describe PEO and EOR services. So, it can be difficult to discern the differences (and similarities) between each. Let’s explore them.

Co-employment is a contractual agreement between a professional employer organization and a company. In this agreement:

• The PEO becomes an employer of record for the company and is tasked with handling certain HR tasks on behalf of the company, such as HR management, payroll, benefits, risk management, and more.
• Both the company and PEO share liability for employee-related matters.
• The company retains full control over employee management, business decisions, and operations.

Unlike co-employment, joint employment means that two or more businesses employ a worker. In this situation:

• The businesses must work together to determine wages, work schedules, assigning employee responsibilities, administering leave, managing benefits, and more.
• In joint employment, all employers are responsible for ensuring the worker is treated fairly and in compliance with workplace laws and regulations.
• A common example of joint employment is a temporary staffing agency that provides employees to companies.
  

You may hear some companies refer to employee leasing and PEOs as if they are the same. They were once synonymous terms, but as the PEO industry has changed over time, co-employment is now the preferred term. When considering a PEO’s co-employment vs. joint employment with a staffing company, it’s important to note they are not the same services.

An employer of record or EOR is an organization that legally employs foreign workers on your behalf. The EOR:

• Assumes full risk for liability related to workplace compliance.
• Manages HR for the global workers from onboarding, payroll, benefits, offboarding, and more.
• Primarily works with companies that want to hire employees in foreign countries but don’t want to establish an entity in that country (or are not ready to do so).

How do services vary between a PEO and EOR?

When comparing PEO vs. EOR services, it may be more useful to think about why you would engage each of these organizations, since the basic HR services (HR management, payroll, benefits, and more) they provide are similar.

An EOR is an HR outsourcing solution that allows companies to quickly and easily hire global employees. EORs legally employ foreign workers on your behalf.

An EOR, then, is ideal if:

• You’re testing a new market overseas.
• You want to quickly expand into another country but haven’t set up an entity in that country yet.
• Your remote employee is moving overseas.
• You want to hire an employee or team abroad on a short-term basis.
• You’re acquiring a company that is overseas and you want to quickly onboard those employees.
• You lack the resources to research and track workplace regulations in another country.
  

A PEO is an HR outsourcing provider that manages daily HR tasks on your behalf in a co-employment agreement, allowing you to focus on your core business.

A PEO is best when:

• You lack time or resources to manage your HR.
• Your workforce is located in one country or state.
• You’d like to provide more comprehensive and affordable benefits.
• You need assistance with compliance for workplace-related laws and regulations.

There are two key differences between PEO vs. EOR services to note:

• How a PEO vs. EOR approaches compliance
• and the life of a PEO or EOR relationship.

Though a PEO can provide guidance on compliance, ultimately your company is responsible for being compliant with workplace laws and regulations. With an EOR, the EOR is fully responsible for compliance with workplace requirements for your global employees.

How long you may engage a PEO or EOR also varies. Many small and mid-sized businesses engage a PEO indefinitely, as they recognize the value of partnering with a PEO in helping them grow their business. There are also no restrictions on the length of a contract.

However, hiring an EOR is often a short-term solution. Many countries limit how long an EOR contract can be, what activities an EOR employee can perform, or how many EOR workers you can have. Also, many businesses use an EOR’s services temporarily while they establish an entity in another country.