What’s the difference between a PEO and EOR?

Welcome to Ask an Adviser, EBN’s new weekly column in which benefit brokers and advisers answer (anonymous) queries sent in by our readers. Looking for some expert advice? Please submit questions to [email protected]

This week, we asked Uriel Eldan, head of international expansion for Omnipresent, to weigh in on the following: What’s the difference between a professional employer organization (PEO) and employer of record (EOR)?

This is such a timely question, given the tight labor market we’re experiencing today. EORs and PEOs are resources to navigate international team growth and employment.

The U.S. is the only country that defines and regulates PEOs as compared to EORs, which are recognized and regulated in many countries. EORs and PEOs have been around for more than 100 years and there are some important distinctions between the two — but both can offer extensive employment management services and provide holistic HR and administrative solutions. They also offer support to help companies comply with local employment laws, local customs and industry best practices.

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A PEO provider manages the HR aspects of your HR team — but the employer retains full control over the relationship with the employee and their work. The service agreement between the PEO and its client company ensures this arrangement. PEOs can typically be used by U.S. companies to manage their U.S. workload, or by international companies that have a U.S. subsidiary.

An EOR is an extension of the HR team, but it is legally separate. The legal employer is the EOR itself, not your company. It is typically used by companies that wish to hire full-time employees abroad, but do not want to get involved with incorporating entities globally and learning about the different labor law and tax regimes worldwide. EORs take on the responsibility of compliance with local employment regulations.

Another key difference is the fact that EORs are very well suited for even a very small number of employees — starting with just one. With PEOs, there is typically a minimum amount of 5-10 employees to begin with. A diverse global talent pool provides exponential benefits such as local market insights, language capabilities and innovation. I have worked with companies that have seen tremendous growth in new aspects of their business because of the reach of their global teams in areas they had not previously explored.

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However, companies have to determine how they can actually hire that person in another region or country, given all the accompanying local regulations and compliance complexities involved, such as taxes, payroll, benefits, onboarding and offboarding.

If companies are looking to hire talent globally without setting up local entities in each jurisdiction, an EOR is probably a better solution for their business. This allows the company to immediately and compliantly employ staff in different industries in countries and territories around the world.