EOR? PEO? All those workplace acronyms can be boggling. But luckily, once you unpick them, they’re mostly there to make life simple. Especially EOR and PEO. So, to give them their full titles, they are:
- Employer of Record
- Professional Employer Organisation
That doesn’t necessarily shed all the light you need. So, let’s drill down. They’re global HR outsourcing options. Let’s drill even further down… They’re both external HR partners used by global organisations to streamline processes and support their workforce. If you’re a global business and you’re thinking about outsourcing options, you’re in the right place. Let’s get into the detail.
What’s an EOR?
An Employer of Record is a service provider who can employ a worker in another country on your behalf. If you don’t have a legal right to operate in a particular location (just FYI, you’ll probably see that called an entity), then you need to use an EOR.
So, how does an employer of record work? An EOR will sort your payroll, benefits, tax deductions, reporting (all that payroll loveliness that makes employment work) and take on all the legal and administrative responsibility of employment. That’s because they are the full employer of your international hire.
What’s a PEO?
A Professional Employer Organization will “co-employ” a worker with you. This arrangement could be invaluable. It’ll save you time and allow you to focus on your business and your customers. HR related responsibilities such as payroll processing and administering benefits are time consuming and complicated.
Partnering with a PEO means you can say farewell to all the hours spent in admin and managing a complex international HR process. But to use a PEO in a country you must have an entity (just a little reminder… like we said above, that’s the legal right to operate in a certain country). The legal responsibilities and roles are decided and then shared between you and the PEO as co-employers. It’s like having a really good teammate who knows their stuff.
So, what are the differences between an EOR vs. PEO?
We’ve established that an Employer of Record (EOR) and a Professional Employer Organisation (PEO) could each offer a way to take the pressure off your in-house payroll team and support you with all your HR and employment needs. But this is global hiring. It’s a huge and varied field, so of course there will be nuances!
There are differences between using a PEO and an EOR and those subtle differences can be important. Let’s dive in.
1. Employment relationship
Both EORs and PEOs provide an employment service, but this is the big one. It’s where the main differences lie. If you partner with an EOR, you choose to let them act as the legal employer of your international hire.
The employer of record takes on all the responsibilities and risks associated with legal compliance, on-boarding and payroll. There is one employment agreement, and it’s managed solely by the EOR. It’s a three-way contact, between EOR, yourself and the employee. They do not handle all the extra HR functions but do make for the best option when you need to hire smaller numbers of temporary employees quickly and economically.
On the other hand, with a PEO you’re co-employing. Your professional employer organisation will share responsibilities with you. They will handle all your HR needs, but you have a greater degree of control as you’re still employing your workforce.
You decide on the operations, but the PEO will work with you, offering specialised advice and the expertise to make things happen. There are two employment agreements: one between the PEO and your employees, the other between yourself and your employees. This makes a PEO the perfect choice when you need to on-board an entire workforce.
Therefore, in essence, with an EOR you hand over the legal responsibility. And with a PEO you work together.
We live in a tricky world and it’s all about liabilities. When it comes to choosing the EOR option or the PEO, you need to think about this. Do you want to share the liabilities or sign them over? This all comes down to your status in the country you’re operating in.
If you do hold a legal entity, then you can pass go (wish we could tell you there was a £200 pay out!) and advance to the co-employing route. This is when you can choose to outsource to a PEO. Legal responsibilities relating to employment will be shared. Working in new countries and different regions is complex. You can benefit from working with a dedicated team who’re up to date on all the labour laws and tax regulations surrounding payroll and employment. You’ll get all the best advice whilst still co-employing your own employees. You’ll have access to all the PEO’s range of HR services.
No entity? Then to maintain legal compliance, you need to use an EOR which will then take on all the legal liability. This could be a huge advantage though. It gives you total peace of mind that someone else has the labour laws, the tax regulations, all the legal requirements and compliance under control, and up to date. And they will ensure you’re running a tight ship, sailing on the right side of the law.
EORs can open up opportunities for multinational companies wanting to expand into new territories. Signing on new hires in new places can be very quick and low in risk when using an EOR. They have all the local knowledge and all the legal credentials: in fact, all the know-how to get things done in that new country.
3. Control over HR functions
This perhaps is the area in which the difference between PEO and EOR will be mostly keenly felt, and seen, by your employees.
If you use an EOR then on an HR level not much will change for your employee in their experience of day-to-day HR. Your EOR has you covered for anything to do with payroll and benefits. But everything HR – motivation, team building, monitoring progress, setting targets, keeping the team working, efficiently and effectively – that’s all down to you.
If you choose to go with a PEO, they will be much more involved with your organisations HR. We’re talking about a joint relationship and a much more active one. You’ll have a service agreement, and you’ll fine tune responsibility for who handles which roles.
The PEO will oversee compliance with local employment laws, running the payroll, checking all the benefits are correct. But beyond this, your PEO will also be on hand to advise on recruiting, training and team building. All the better for freeing you up to what really matters most to you.
One more criteria which could help you decide on whether you’re going to vote EOR or PEO is scale. But we’re not just talking about the size of your business now. You need to take into account your projected size.
Opting for an EOR can work brilliantly if you only need to sign on a few workers in a new country and you need to get them up and running quickly. It can be the faster, more affordable option.
It can also be your flexible friend. You don’t have to have all your employees managed by an EOR. For example, if you have a project and it’s perfectly suited to a specific, skilled team, but in that location the law states all contractors must be locally employed – sign them up locally with an EOR for the duration of the project. Job done. One foot in, one foot out. But you can relax in the knowledge that not only is compliance taken care of, so are your people.
However, growing companies might need to be cautious. In some countries, Germany for example, if you use an EOR for too long without seeking your own entity, you outstay your welcome. At a certain point the authorities may require you to seek your own entity or vacate.
So, even for large companies, EOR’s are time savers, and money savers, when hiring in small numbers, but you need to plan ahead. If you’re envisaging long term expansion in a country, then applying for a legal entity is the way to go.
At this point, as a fully paid-up member of the entity club, you can consider the services of a PEO.
PEOs aren’t just the perfect partners of major global business. A PEO can be a really handy way for small to medium-sized expanding businesses to reap all the rewards usually only on offer to larger firms. With more employees around the world, suddenly your co-employing PEO can broker all the best health care, pension, and bonus benefits for your employees. Scale wins.
So, what’s your best choice? EOR vs. PEO?
Well, we did say it was going to be complicated. But hopefully you’re a lot better informed now than when you first started reading.
There’s a lot to take on board, but we’re here to help. At Just Payroll Services we believe that once you know where you’re heading with your business, then we can help you decide on the best possible HR outsourcing route for you.
The four magic criteria:
- The culture: What sort of employment do you want for your overseas employees?
- The legals: Do you have an entity? Do you want one?
- The HR: Hands on or hands off?
- The scale: How big are you? Today? Tomorrow? Next Year?
Answer these and the EOR vs. PEO conundrum begins to right itself. But don’t take our word for it. Get in touch. We want to help shed some more light on your own individual situation. We relish a challenge, and we have a wealth of expertise and experience at our fingertips. No two organisations are the same, but we’ve got an outsourcing solution for everyone, including our employer of record services.