Understand the differences between a Professional Employer Organization and an Employer of Record and determine which solution is best for your business.
While you might have heard the terms “PEO” and “EOR” used interchangeably, these are two different outsourcing solutions to two separate HR problems. In this guide, we explain the key differences between PEOs and EORs to help you decide on the one that you need.
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What is a PEO?
PEO stands for “professional employer organization.” A PEO is a full-service human resource outsourcing solution that takes over HR tasks on behalf of another business. PEO services can be hired to handle payroll, benefits administration, talent management and many other functions.
PEOs are often hired by small and medium-sized businesses that don’t have the expertise to handle these tasks themselves and don’t have a large enough wardrobe to justify hiring someone in-house full-time.
For more information, see our complete guide to PEOs.
What is an EOR?
EOR stands for “employer of record.” An EOR is a business that legally employs a worker on behalf of another company. EORs are typically used when a company wants to hire a worker in a country where they do not have a legal entity established. While the company can hire that worker as a contractor, if they want them to be a full-time employee with benefits, they will need an EOR.
EORs take full responsibility for ensuring compliance when it comes to payroll, taxes and other HR issues. The employee performs work for the company, but the EOR is the legal employer on paper, acting as a go-between to shield the company from legal risk.
For more information, see our complete guide to EORs.
PEO vs. EOR: Comparison table
| PEO | EOR | |
|---|---|---|
| Structure | Acts as a co-employer | Act as the full legal employer |
| Legal entity | Client must already have a legal entity established in the country | Client does not need to have legal entity established in the country |
| Legal risk | Shares your legal risk | Assumes legal risk on your behalf |
| Scope of work | Outsources all or part of your HR work | Takes over as the legal employer |
| Client size | Small and midsize businesses | Large businesses and corporations |
PEO vs. EOR: What are the key differences?
Business structure
PEOs act as a co-employer along with whatever companies hire them. This means that the company hiring a PEO should already have a legal entity established in the country where they plan to do business.
Meanwhile, EORs act as the full legal employer, a completely different business structure that sets them apart from PEOs.
Need a PEO or EOR?Rippling has both PEO and EOR services, so whether you’re a small business looking for payroll help or an enterprise expanding globally, they’ve got you covered. Depending on what service you choose or what you need, Rippling can manage your payroll, benefits management, hiring and onboarding — among other things. |
Legal risk
PEO acts as a co-employer, so they share the legal risk alongside you. This is why clients typically must already have their own legal entity set up in the country they wish to hire the PEO.
In contrast, EORs assume the legal risk on your behalf, taking responsibility for compliance with local laws.
Scope of work
The scope of work is more flexible when it comes to a PEO, since it can be used to outsource all or part of your HR work. For instance, you can hire a PEO to do just payroll or only benefits administration — or you can outsource all of your HR work to them.
On the other hand, EORs take over all of your HR tasks on your behalf, since they are the full legal employer.
See Also: The Best PEO Companies of 2023
Client size
While both PEOs and EORS can technically work with clients of any size, they typically work with different companies. PEOs mostly work with small or midsize businesses that need HR support, but not enough to justify hiring someone full-time.
EORs typically work with large businesses or corporations that are expanding and want to hire employees in a new country where they don’t have a legal entity established.
Cost
The cost of both PEOs and EORs varies greatly depending on how much work you need them to do. While the cost for a PEO might seem high, it’s less expensive than hiring someone full-time for many small businesses — at least up to a certain point. Many businesses hit a tipping point where the PEO costs about as much as it would to hire an HR expert full-time, and that’s when they look to expand their in-house HR team.
EORs are expensive, with prices starting at around $600 per month for each employee that you want to hire in another country. That might sound like a lot, but EORs are still far more affordable than establishing a legal entity in a new country and hiring experts who can ensure compliance with local laws. Many large companies stick with EORs for years due to the many benefits they offer.
Which service should you choose: PEO or EOR?
Both PEOs and EORs can be beneficial, depending on your unique situation. Here’s when you should choose a PEO and when you should choose an EOR:
When to choose a PEO
- You are a small or medium-sized business that needs help with certain HR tasks.
- You don’t have enough HR work to justify hiring someone full-time yet.
- You want to outsource certain HR work so your team can focus on talent management and company culture.
- You want flexibility in which HR tasks you outsource.
- You want additional support for legal compliance.
- You already have a legal entity set up in the country you want to hire the PEO.
When to choose an EOR
- You are a large business looking to expand into a new country.
- You want to offer the workers benefits as part of a competitive compensation package.
- You do not have a legal entity set up in the country where you want to hire workers.
- You are looking for a company that can assume the legal risk on your behalf.
- You are seeking an organization that will act as the official employer.
If both PEOs and EORs sound like too much for your needs, then check out our recommendations for the best payroll software and the best HR software.
