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EOR vs PEO: which is better for your business?

EOR vs PEO: which is better for your business?

2019 isn’t the time to confuse EOR (Employer of Record) with PEO (Professional Employment Organization). These services have crucial differences that may both improve or worsen your business when applied incorrectly.

Both solutions are used as a painless method to handle out-of-state or international expansion.

Often international expansion is intended to reduce cost and improve revenue. However, when you hire employees out of state or country, you need to comply with the rules from the employee’s place of residence.

This is not only time-consuming, but also expensive and therefore ineffective. This is why more and more companies turn to EOR or PEO services.

What are EOR and PEO?

Professional Employment Organization provides co-employment services. Therefore, it does not act as an employing entity but rather becomes a helping hand of the HR department covering headhunting, onboarding and payrolls, benefits and administrative services. While the client company still carries the burden of the employer’s obligations.

Employer of Record is a third party company who acts as a partner. EOR handles all tasks regarding its employees. It is a legal employer who is fully responsible for staff administration and compliance with the laws. You don’t have to provide office space, equipment, training or sign any agreements with your new employees, it’s all done by your partner EOR.

Key differences between EOR and PEO

Each solution bears a different level of legal commitment. It’s crucial to recognize the difference as it then may affect your company’s business model, the strategy of risk management and legal liabilities. Here are the key factors that you should distinguish:

1.Employment Contract

PEO: As a part of your HR department PEO will help with handling the employment contract. However, it doesn’t function as a legal employer, which means that the agreement itself is concluded between the employee and the client company.

EOR: Often client company has access to the details of EOR- employer agreement. Nevertheless, after a company signs a service agreement and partners up with an Employer of Record, it takes full responsibility of all legal matter regarding employees, including employment contract.

2.Insurance

PEO: It is possible to have the insurance covered by PEO, it is usually done on the client’s request and has to be paid for in addition. Even though PEO is often able to provide a cheaper insurance plan, you still have to arrange own insurance for security as a co-employer.

EOR: Insurance is a part of the EOR global service package and protects both the agency and the client. General Liability, Professional Indemnity, and Workers Compensation are all covered by the EOR.  It carries full responsibility before the law on your behalf.

3.Business registration

PEO: As we have already mentioned, PEO fulfills a role of a co-employer, which means that if you are looking into international expansion you still have to set up and register your presence in the chosen country.

EOR: On the contrary, EOR is usually already located in the country of your choice and has a registered local entity. Subsequently, thanks to this partnership you are able to hire right away, avoiding dealing with local authorities and legal compliances.

4.HR Functions

PEO: Being an HR outsourcing service, PEO covers a wide range of tasks including recruitment, payrolls and taxation, risk management, workers insurance, and regulatory compliance. These can add up as an economical solution to a structured payroll and employment regulations. But keep in mind that all PEOs have a compensation minimum, which means that they will only “co-employ” at least 5-10 people to generate sufficient income.

EOR: On the other hand EOR fulfills the role of an actual employer. Therefore, alongside the services mentioned above it also takes over office management. This cuts the costs for office rent and maintenance, provision of hard and software, training and onboarding. EORs have no problem working with companies, who are only looking for one or two employees.

What should I choose: Employer Of Record or Professional Employment Organization?

If you are still struggling to make a decision here are some hints that can help you decide:

Choose PEO if you:

  1. Strive to have officially registered business locations.
  2. Need to reduce HR’s department desk work and managerial tasks.
  3. Plan to expand within the US.
  4. Looking to hire over 5-10 employees.
  5. Struggle with insurance compliance and need help to adhere to employment regulations.

Choose EOR if you:

  1. Seek instant international expansion but have a limited budget.
  2. Want to test different markets without legal commitment.
  3. Want to outsource the contingent workforce.
  4. Plan to expand your business gradually and start with a few employees first.
  5. Ready to fully hand over the obligations of the employer.

PEO is a perfect service for the businesses in the United States, who want to expand to other states and comply with local employment regulations. EOR, on the other hand, is a suitable solution for going international as it provides a high level of legal protection and acts as a reliable partner in a new business location.

All in all, clearly define your needs, search for a suitable solution and you’ll get a perfect match.