PEO vs EOR
The terms PEO (Professional Employment Organisation) and EOR (Employer of Record) are often used interchangeably, as both services help businesses expand locally or internationally by employing workers on their behalf. However, the distinction between PEO vs EOR can vary depending on the country or region.
For instance, in Asia, the terms are used to describe employment outsourcing with no clear differentiation. In contrast, in the UK, an EOR is sometimes referred to as an umbrella company. This variation in definitions can add to the confusion when choosing the right solution for your business.
While both services offer similar functions, there are key differences that can impact a company’s risk, liability, and compliance. Understanding these distinctions is crucial when selecting the best option for your needs. To make the decision easier, we’ve broken down the differences between a PEO and EOR below.
Jump to:
EOR Meaning
PEO Meaning
Employer of Record Services
PEO Services
PEO vs EOR: What is the Difference
When to choose PEO vs EOR
When to choose EOR vs PEO
Finding the Right Fit for Your Business
EOR meaning
An Employer of Record assumes responsibility for employment arrangements, managing key administrative tasks such as payroll, benefits, terminations, and onboarding. When you partner with an EOR provider, they legally engage the worker on your behalf, ensuring compliance with employment regulations and managing all the responsibilities that coincide with employing staff.
For more insight, download our EOR Guide, which covers everything you need to know about using an Employer of Record
PEO meaning
A Professional Employer Organisation provides co-employment solutions, meaning you share employment responsibilities with the provider. While a PEO assists with administrative tasks like payroll and benefits, your organisation remains legally responsible for employment liabilities and compliance.
Employer of Record Services – How does it work?
An Employer of Record serves as a strategic partner, handling the administrative aspects of employment on behalf of your company. Here’s how it typically works:
Worker Onboarding
The EOR manages the entire onboarding process, including paperwork, tax forms, and other legal documentation required by local regulations, ensuring a smooth start for new hires.
Employment Management
From payroll processing to benefits administration and compliance with local labour laws, the EOR takes care of essential employment functions, reducing administrative burdens.
HR Support
Employees may turn to the EOR for HR-related enquiries, such as questions about benefits, leave policies, or workplace issues. The EOR acts as a point of contact for these matters, allowing the client company to focus on core operations.
Risk Mitigation
By outsourcing employment-related tasks to an EOR, the client company mitigates the risk of non-compliance with labour laws and regulations. The EOR ensures that all employment practices align with relevant legal requirements, reducing the potential for legal liabilities.
Termination and Offboarding
When necessary, the EOR facilitates the termination and offboarding process for employees, ensuring compliance with relevant employment laws and regulations.
Overall, partnering with an Employer of Record simplifies workforce management, allowing companies to expand globally without the complexity of setting up a legal entity. Speak with an expert to gain a further understanding of the types of EOR services available to businesses looking to grow globally.
PEO Services – How does it work?
A PEO provides businesses with versatility and support to operate in a new market. Here’s how they typically help:
HR Support
Some PEOs provide their clients with a full-service team that can operate as an in-country HR department, benefits administrator, risk advisor, and payroll support.
Tech Platform
PEOs typically provide a technology platform that has the ability to track time, performance, PTO (paid time off) requests, and HR compliance changes, keeping the employer compliant with relevant employment legislation.
Risk and Liability
PEOs share the risk and liability with their clients by entering into a co-employment relationship. As they are a key part of the supply chain, it is in the PEO’s best interest to ensure the end client is compliant.
Employment Costs
Employers benefit from a relationship with a PEO with reduced cost of benefits and workers insurance, in addition to reduced administration when it comes to providing employment benefits and payroll.
PEO vs EOR: What is the Difference?
Employment Classification
One of the key differences between a PEO and an EOR is how the worker’s employment is classified.
- With an EOR, the provider is the legal employer, assuming responsibility for compliance, payroll, benefits, and administrative tasks.
- With a PEO, you remain the legal employer and enter into a co-employment relationship. The PEO assists with payroll and HR functions, but ultimate responsibility for compliance and liabilities remains with your company.
Business Registration Requirements When Partnering With a PEO vs EOR
Choosing between a PEO and an EOR depends on your expansion plans.
- An EOR enables you to hire workers in other countries without having to register a physical entity which can be a huge bonus, allowing you to save office set-up costs, time, and effort.
- If you use a PEO, you will need to register a legal entity in the location where you’re expanding, which can require additional time, resources, and costs.
Flexibility in Hiring
Utilising an EOR allows companies to scale their workforce quickly and efficiently without the administrative burden of hiring and managing employees directly. This flexibility is especially valuable for businesses entering new markets or who may experience fluctuating seasonal demands.
Minimum Employee Requirements When Partnering With a PEO vs EOR
One of the main points of difference when it comes to PEO vs EOR is how many workers you wish to engage. If it is the case where you do wish to try out a new market and are hoping to gradually expand your business, an EOR is usually the right solution for you. If you are more certain and wish to maintain a lasting presence in a new market, a PEO is a better option when you reach a certain employment size.
- With a PEO, you typically need at least 5–10 employees to enter a co-employment agreement.
- With an EOR, you can usually start with just one or two employees, making it an ideal solution for companies looking to expand gradually.
Insurance plans are included with an EOR, not with a PEO
- If you choose to use a PEO, insurance is generally paid in addition to the usual PEO service costs. Insurance can be one of the largest hidden costs involved when working with a PEO.
- Insurance coverage is included with your service when you partner with an EOR. This means your employees are covered for a range of scenarios such as damages and workplace-related injuries, relieving your company of additional insurance costs.
Cost Comparison of PEO vs EOR
Regarding the cost comparison, partnering with an EOR might initially seem more expensive due to its comprehensive service offering, including taking on employment liabilities and providing insurance coverage.
However, this upfront cost can potentially save businesses from future expenses associated with employment liabilities, legal compliance issues, and the setup and maintenance of international offices.
A PEO will appear cost-effective initially. However, the long-term financial implications largely depend on the business’s specific needs, such as the scope of HR services required, the need for international expansion, and the desired level of control over HR processes.
When to choose PEO vs EOR
A Professional Employer Organisation is the right choice if:
- You already have a registered entity in the country where you’re hiring.
- You want to have the ability to sponsor employee visas
- You want to maintain legal responsibility for your employees while outsourcing HR tasks like payroll, benefits, and compliance.
- You have a larger team (typically 5–10+ employees) and are looking for cost-effective HR support.
A PEO works best for companies that want to share employment responsibilities while still maintaining direct control over their workforce. A business should choose a PEO if they want to perform activities that are revenue-generating or creating economic value, which would otherwise cause Permanent Establishment conflicts.
When to choose EOR vs PEO
An Employer of Record is the best option if:
- You need to expand quickly and start hiring immediately.
- You want to focus on operations while an expert handles payroll, compliance, and HR administration.
- You plan to expand globally without setting up a legal entity, avoiding the complexities of foreign employment laws.
Partnering with an EOR, such as Workwell Global, ensures a fast, compliant, and hassle-free way to hire and manage workers, allowing you to scale effectively and efficiently.
PEO vs EOR: Find the Right Fit for Your Business
If you are still unsure which service best fits your business needs, get in touch and we will happily talk you through the differences between PEO and EOR to help you decide which is best for you based on your business goals!
Disclaimer: All information written here is for general informational purposes only and is not intended to be a substitute for professional and/or legal services.