Unless you have ever used a PEO (Professional Employer Organisation) or an EOR (Employer of Record), it’s unlikely you would be familiar with these terms. Often, they are used interchangeably, to describe a service that helps companies to expand both locally and globally.
But, for HR leaders, it’s important to be aware of the difference between the two. There are several differences between the services offered, which can impact your risk management strategy and business operation. When deciding which is best, it’s vital to be aware of the components of each, so you can make the best decision to help achieve your business goals.
To help distinguish between the two, let’s delve into how each one handles different aspects of global expansion.
Employee classification
The key difference here is the employer relationship. When you hire a PEO, there is a co-employment which goes on between the PEO and the organisation. The PEO becomes an arm to your business, taking on all the HR admin that comes with expansion. This includes payroll, risk management, contracts, taxes, benefits etc. They also handle the onboarding, terminations, employee reviews and insurance. Aside from managing this, the organisation maintains full control of the employee’s day to day activities.
In comparison, an EOR is a third-party organisation that hires and pays an employee on behalf of your company and takes responsibility for all formal employment tasks. They take on the responsibility as the legal employer, employing and managing the staff. An EOR oversees seasonal workers, contractors, project-specific hires, and country employees.
Therefore, if you’re looking at hiring a higher number of employees for a longer period, a PEO is your best option. However, if you’re looking to fill a few contractor-based roles for shorter term projects, an EOR is likely to be right for you.
Contracts
With a PEO, while they assist with the legalities that come with compiling compliant contracts in your country of expansion, you still maintain control of the contracts, which is between the employee and your business.
In comparison, when you work with an EOR, they take the form of the legal employer. Therefore, the contract is between the employee and the EOR. The details of the contract are still agreed by the client via a service agreement but legally, the contract is between the EOR and the employees.
Business registration
With a PEO, as your co-employer, the organisation is still required to set up and register an entity in the location of their business.
On the other hand, with an EOR, they already have a registered business in the country of interest. As a result, organisations can hire in countries without registering an entity.
Therefore, when it comes to speed an EOR can help businesses expand faster and more flexibly. This can be particularly beneficial when requiring a contingency workforce for meeting business demand.
How do you know which is the best service for your business?
Both a PEO and EOR, although similar, address different pain points. To summarise, a PEO will help your HR team manage the admin that comes with global expansion. They can help you expand your team whilst you still maintain control of your employees’ day to day activities. With an EOR, they can help bring in a contingency workforce to help expand your business at very short notice and can work with a short project period.
If you’re still unsure or would like further clarification on which service is right for your business, speak to a member of our global expansion team today.
