In-Depth: What Is PEO and EOR?
PEO and EOR are services that can act as an extension of your company. They are particularly helpful for international expansion as most companies don’t have the expertise or resources to comply with regulations in foreign countries.
Consequently, companies may choose to partner with either a Professional Employer Organization (PEO) or Employer of Record (EOR). Unfortunately, these terms are often used interchangeably when they are actually different services.
Choosing the appropriate service is vital to success as it can affect risk management, liability and business operations. Let’s look at the differences and similarities between PEO and EOR so you’re better able to make an informed decision.
PEO Scope of Work
A PEO can act as an outsourced Human Resources department. They offer a suite of services including payroll, benefits administration, taxes, regulatory compliance, staff recruitment, onboarding, employee reviews, terminations and more.
Generally, they suit companies that want to outsource all HR functions for the long-term. Since they bear the burden of most of a company’s HR work, businesses can expect to pay a substantial sum for their efforts.
EOR Scope of Work
An EOR offers a more flexible solution. Your company can outsource the some HR administration, freeing up time for business growth. Businesses can pick and choose from a full suite of services to complement or augment operations. These include payroll, recruiting, onboarding, employee reviews, benefits administration, compliance, tax filings, and more.
Generally, an EOR suits companies that need foreign employees, contractors, and project-specific workers. They’re helpful during international expansion while your company establishes its presence in a new market. However, they can also arrange full or part-time employees for long-term goals.
PEO Employee Classification
If your company engages a PEO service you enter into a ‘co-employment’ relationship with the organization. Basically, the organization becomes a part of your company’s HR arm and manages administrative activities.
However, employment responsibilities and liability still rest with your business. The organization may help you with the handling of the contract, but the contract itself is between the employee and your company. They do not ensure compliance of employment contracts and your company remains liable for any breach of contract claims.
EOR Employee Classification
Conversely, an EOR service fully administers employment and assumes employment liability. As the term implies, they are the ‘Employer of Record’, employ the workers, and become the legal employer on your behalf. However, the employment details are mandated through the service agreement between the EOR and your business.
Small to medium-sized businesses can find it especially difficult to manage teams abroad. They must comply with complex labor laws in each foreign territory. To complicate matters further, employment laws change quickly and often. Without expertise and constant oversight, they can’t meet compliance.
Taxes, insurance, benefits, unemployment, terminations, document retention and storage, fees, reporting, and other responsibilities are all handled by an EOR, simplifying expansion efforts. You maintain a single service agreement with the EOR and all employment contracts are between the EOR and your workers. Issues arising from employment contracts are the EOR’s responsibility.
PEO Business Registration
A PEO is considered a co-employer, not a partner working with your business in another region. Your company still needs to register and setup in each foreign territory where you’ll conduct business or employ residents. Unfortunately, this can be a costly, complex and time-consuming process in some areas.
EOR Business Registration
Alternatively, an EOR has already registered their business in the foreign country. They can easily hire employees, contractors, seasonal and part-time workers. Your company does not need to register or setup your business in the foreign country if all work is performed through the EOR arrangement, saving your business time and money.
PEO Employee Quotas
A PEO service needs to implement employee quotas to make a co-employment worthwhile. Typically, they require a minimum of between five and ten employees.
Many businesses find this an unrealistic expectation when entering a new territory. They may want to ‘test the waters’ before investing heavily in a new market.
EOR Employee Quotas
An EOR is a better solution for companies that want to start their expansion plans on a smaller scale. Typically these services do not include employee minimums, or they may work with much smaller numbers such as one or two workers.
Clearly, this makes it much easier to tap into a new market since your company needn’t make a huge initial or ongoing outlay before you realize gains.
A PEO will either require you to carry your own insurance, or they’ll offer it as an opt-in for an additional fee. If they do offer insurance, your company may enjoy lower fees since they deal in higher volumes and they’re well-connected with insurers. However, it is not a mandatory requirement of their services.
An EOR is legally obliged to provide insurance coverage for their workers. This coverage is included in their general service package. It provides general liability coverage and workers’ compensation insurance when required in the region.
Businesses operating abroad are protected from the financial and legal implications of employee damages and workplace-related illnesses or injuries.
Selecting the Right Service
A PEO and EOR are very different services. Each can help a company achieve their expansion goals depending on their workforce strategy.
An EOR is a flexible solution for a company looking at quick expansion, without a hefty commitment. It’s possible to bring in a contingent workforce to meet business demands, without registering and setting up a physical entity in a new market.
A PEO may suit your business if you want to relieve your company of much of its HR burden abroad. It’s a long-term investment and your company will still need to register in the foreign country and manage employment contracts.
If you’re uncertain, contact us for a free consultation. Blueback Global is your international business expansion expert. We’ll listen to your business goals, assess the talent you need and offer a tailored solution.
We’re well-positioned and highly-experienced. Let us help you overcome employment challenges in foreign markets.