Staying on top of intricate labor laws, strict tax regulations, and demanding compliance measures is a lot of work. And while your team is busy navigating these complexities, you’re opening yourself up to risk.
EOR and PEO are two solutions that offer an alternative to the traditional HR setup, helping you seamlessly manage payroll, compliance, and more. But how do they each work? And which is right for your business?
Let’s take a deeper dive into these concepts to explore their differences and help you determine which one best aligns with your short and long-term goals.
What is EOR?
An Employer of Record (EOR) is an organization that helps you onboard, pay, and manage employees in another country without setting up a local entity. With no need to go through the time-consuming processes of registering a business, opening a local bank account, and learning compliance regulations, companies can hire talent more quickly and more affordably while outsourcing risk.
Throughout the employee lifecycle, an Employer of Record takes on responsibility for compliance and manages HR tasks while you retain operational control. This means you don’t have to worry about handling HR tasks like payroll, benefits administration, expense management, and IT asset distribution. However, you’ll still manage your employees’ day-to-day activities, such as job duties, performance, and work schedules.
An EOR works particularly well when you are:
- Testing new markets. You can hire local talent without setting up a full office.
- Sourcing specialized skills. You can hire top talent more quickly.
- Scaling. You can hire globally without the delays that occur when you have to establish local entities.
- Looking to reduce risk. EORs specialize in navigating local employment laws, minimizing the risk of penalties and legal disputes.
- Looking for flexibility in market expansion. EORs allow you to scale operations up or down quickly in response to market conditions.
What is PEO?
A Professional Employer Organization (PEO) is a company that provides HR services to companies that already have a local entity established.
Unlike traditional HR outsourcing, a PEO enters into a co-employment relationship with its clients. This means you’ll be jointly responsible for ensuring your company adheres to local labor and tax laws, but you can outsource tasks such as:
- Payroll processing
- Benefits administration
- Compliance management
- HR consulting
- Risk management
- Tax filings and withholdings
You might use a PEO if you lack the administrative resources to manage HR or need local compliance support.
EOR vs PEO: Differences
By now you’re probably beginning to understand the biggest difference between an EOR and a PEO… While an EOR assumes primary responsibility for compliance with local labor laws, tax regulations, and employment standards across multiple jurisdictions, a PEO shares these responsibilities with you, but only in countries where you have an entity established.
Take a look at the table below and check the cost comparison to understand more about how the two services differ.
Cost considerations
While EORs generally entail higher costs, they assume full legal and financial responsibilities across multiple jurisdictions. EORs also usually offer transparency in cost structures related to compliance and administrative services, facilitating accurate budgeting and financial planning.
PEOs provide cost efficiencies through economies of scale, pooling resources, and administrative functions across multiple clients. While this may involve lower upfront costs compared to establishing local entities, PEOs sometimes come with service fees and hidden costs.
Pros and cons of EOR
Still not sure whether an EOR is right for you? Here are the pros and cons.
EOR pros
An EOR is a robust, scalable solution that allows you to expand globally with ease. The main advantages are:
1. Efficient market entry.
EOR accelerates market entry by handling the intricate legal and administrative tasks required to establish a presence in new international markets.
2. Compliance assurance.
EORs specialize in staying updated with local employment regulations, tax requirements, and statutory obligations, thereby minimizing the risk of legal penalties and operational disruptions. This proactive approach not only safeguards businesses from compliance pitfalls but also fosters a compliant and ethical corporate image across global markets.
3. Operational flexibility.
Businesses maintain strategic oversight and operational control while leveraging the administrative support provided by EORs. This allows companies to focus on core business activities and strategic initiatives, confident that day-to-day HR and administrative tasks are managed efficiently.
4. Increased flexibility and ease.
If you use an entity, you might struggle to withdraw from a market without costs or extensive admin. The flexibility offered by EOR services enables businesses to adapt quickly to market changes and scale operations according to business needs.
5. Administrative efficiency.
Through onboarding, managing, and paying global employees, EORs ensure HR tasks are executed seamlessly. This efficiency not only saves time but also optimizes resource allocation within the organization, allowing teams to focus on strategic initiatives.
6. Cost transparency.
EOR services offer transparent cost structures, enabling businesses to accurately budget and plan financial resources for global expansion initiatives. This separates them from some global staffing agencies and other global hiring solutions. Uncover a complete cost comparison in our global hiring guide.
EOR cons
The only downside of EOR solutions is that they are more expensive than PEO solutions. However, with these higher costs come increased functionality and support.
Pros and cons of PEO
Let’s take a look at the pros and cons of PEO solutions in comparison:
Pros | Cons | |
Cost efficiency | An affordable solution for streamlining HR processes and reducing administrative burdens. | Doesn’t support global hiring so you’ll still need to pay to set up your own entities. |
Shared HR responsibilities | Jointly manages payroll, benefits, and compliance with your business, sharing risk. | Co-employment can lead to complexities in legal and operational responsibilities. |
Scope | Best suited for companies with a domestic focus. | Limited to locations where local entities are established. |
Choosing between EOR and PEO solutions
Whether you opt for an EOR or a PEO will depend on where you want to hire and your compliance requirements. If you’re a small business with a limited team and you’re looking for support with domestic HR tasks, a PEO could be a great solution. You’ll enter a co-employment arrangement and outsource some of the responsibility and risk involved with compliance.
If, on the other hand, you’re looking to expand across the globe, ensuring that compliance and HR tasks are handled at every stage, an Employer of Record will be more suited for you.
Multiplier offers a comprehensive Employer of Record (EOR) solution designed to simplify and streamline global employment. You can generate locally compliant contracts in minutes and have new hires working within four hours while avoiding the stress and admin of setting up a local entity and navigating local laws.
After a seamless onboarding process, we’ll handle global payroll, localized benefits, IT asset distribution, and more in a single solution. Meanwhile, you’ll be able to access human support whenever you need it.
Combining several HR functions into one, our EOR solution is a cost-effective approach to onboarding, managing, and paying global employees. Want to learn more? Book a demo with our experts.
FAQs
Q. What is the difference between EOR and PEO?
An EOR handles hiring and compliance in countries where you don’t have a local entity, while a PEO supports HR tasks for companies with an existing local entity through a co-employment model.
Q. Can a PEO handle international employees?
No, PEOs operate domestically; an EOR is more suitable for global hires.
Q. Is EOR more expensive than PEO?
EORs may appear costlier due to their international scope, but they eliminate the need to set up a local entity, saving costs in the long term. PEO services also sometimes come with hidden costs.
Q. What are the compliance risks of PEO vs. EOR?
With a PEO, you share compliance responsibilities, increasing your risk exposure. An EOR fully assumes compliance risks for employees they manage.
Q. How does co-employment work in a PEO model?
In co-employment, the PEO manages administrative HR tasks while you retain control over employee roles and performance. Both parties share legal responsibilities.
Q. How do EOR and PEO services work with temporary or full-time employees?
Both PEOs and EORs can be used for full-time employees, but for contractor hires, businesses usually opt for an Agent of Record (AOR). This is a hiring facilitator that helps you ensure your contractors are classified correctly so you can avoid fines and legal issues. They also help you pay your employees in the right currency in line with local laws.