EOR v/s PEO: Which Is Right For Your Business?
If you want to access the best talent regardless of the size of your business and without stretching your budget, you need to start hiring globally. While this may seem counterintuitive, there is an entire industry to help you hire from anywhere in the world, at any time you need.
Having a global presence is something most businesses strive to achieve. If you are looking to expand your business, you need the right resources to efficiently onboard and manage independent contractors and full-time employees from around the world.
Indeed, Human Resource (HR) is the backbone of all companies, and you must manage your people effectively, especially when you have remote teams spread globally.
There is no doubt that most businesses need something more robust than traditional HR management to streamline global contractors and employees.
This is precisely where a Professional Employer Organization (PEO) and an Employer of Record (EOR) come into play.
Their services can help you navigate the complexities involved in international hiring and employment. However, they don't provide the same type of services, and one may be better suited for your company's hiring strategy than the other.
Read on to find out which one is right for your business' global HR needs.
PEO services and EOR services: An overview
PEOs and EORs are professional services providers that help companies with their internal HR functions locally and globally.
Some people in the HR industry use both these terms interchangeably. However, both services have vital distinctions that you should be fully aware of before choosing one for your business.
In this article, we will explore what services PEOs and EORs offer and examine their key differences.
What is a Professional Employer Organization or PEO?
A PEO partners with small and medium-scale companies to offer comprehensive HR services, including regulatory compliance, recruitment, training, development, payroll processing, tax filing, and more. A PEO is thus an outsourced HR unit that offers expert yet cost-effective services.
When a company collaborates with a PEO, it carries out its regular operations, employee functions, and other responsibilities while the PEO handles all HR-related processes, including payroll, tax remittance, etc.
For your employees, this means that they will likely see the PEO's name on their paycheques and all HR communication.
PEO services include:
- Payroll processing with payroll compliance and record maintenance.
- Administering worker's compensation.
- Compliance assistance per the labor law and employee requirements.
- HR administration.
- Employee training.
- Recruitment and hiring.
- Strategic planning to attract talent and managing HR costs.
- Handling all employee benefits including medical, educational assistance, or dental insurance.
Of course, your PEO will offer customizable services based on your requirements. And, opting for only the specific services your company needs could lower your PEO fees.
PEOs are an excellent choice for companies looking to expand their global team and set up local entities requiring the support of a local HR. This eases their HR workload HR and saves the company time and resources.
However, please note that a PEO isn't appropriate for you if you want to hire globally without setting up local entities.
Limitations of using a PEO:
While partnering with a PEO can be advantageous, it is not suitable for everyone. It can prove to be detrimental to your business in some instances. Outlined below are some of its limitations:
1. Loss of control
Even if most employees are satisfied with the organizational policies, the company must comply if the PEO chooses to change policies. A PEO is the organization's governing body, which means there is a loss of control for the company.
2. Potential risk
Even though the PEO is a co-employer of the global team, the company continues to retain certain rights. Also, as the employer, the company has certain legal liabilities. This means, if audited, the company can face penalties for employment responsibilities.
3. Unexpected changes
The company can be subject to unexpected changes if its PEO decides that the company is a liability. The PEO then has the legal right to move the company to a high-risk category, resulting in a hike in its service charges. This can make the collaboration problematic for the company.
4. Cash flows
A PEO can request payments from the company as up-front costs, potentially disrupting the company's cash flow.
What is an Employer Of Record or EOR?
When a company doesn't want to outsource its entire HR function or collaborate with a co-employment organization, the services of an EOR may be ideal.
A global EOR renders services similar to a PEO; however, unlike the co-employment arrangement with a PEO, an EOR is a legal employer.
An EOR handles payroll compliance, payroll taxes, benefits administration, unemployment claims reporting, and other HR-related jobs. The EOR also ensures compliance with all local employment laws for their collaborated company.
EOR compliance services include:
- Benefits as well as welfare.
- Severance and termination.
- Payroll tax.
- Collective agreements.
EORs sign the employment contract with the employee. They are legally considered the employer of the company's employees. Therefore, the EOR is lawfully liable for them.
Nonetheless, the company retains complete influence and control over its employees' work and projects. This is made sure by the service agreement between the company and its EOR.
If a company's EOR is established in many countries, the company can legally employ workers in those countries through the EOR. So when hiring an employee based in a country where you don't have a physical presence, partnering with an EOR is the way to go. This way, you won't need to set up a local entity, saving your HR team valuable time and resources.
By collaborating with an EOR, you can hire talent from overseas and maintain full compliance. In addition, the EOR handles your entire HR function, including payroll and benefits.
What's the difference between a PEO and an EOR?
1. Type of employer
A PEO serves as a contractual co-employer of the entire workforce, sharing all the HR responsibilities and liabilities that come with it. It can also take over the entire HR function if needed.
An EOR becomes a legal employer for a company's employees. It takes on the liabilities and responsibilities of the organization.
2. Business registration
A PEO partners with companies that are already registered in the countries and states where its employees are based.
On the other hand, an EOR allows companies to hire from different countries or states without setting up a legal entity there.
When working with PEOs, insurance is perhaps the biggest hidden cost.
While EORs provide general liability (GL) and workers' compensation (WC) insurance, PEOs may require the company to provide insurance to its global employees. EORs ensure that employees are covered for damages caused to property or other people, as well as workplace-related illnesses or injuries.
Having said that, PEOs will generally have access to cheaper insurance given their tie-ups with insurance companies. The same insurance plans will cost more with EORs.
4. Minimum employees
A PEO offers services for a minimum of 5 to 10 employees. An EOR provides services for even 1 to 5 employees.
Choosing the right partner
If you're looking to expand your business presence geographically through a PEO, you will have to set up and register a legal entity in the countries you want to hire from.
As against this, an EOR would have a registered business in the country you are interested in hiring.
So in the case of hiring talent from a country where you don't have a legal presence and don't plan to set one up, an EOR is the right choice for you.
Generally, PEO services require a company to have considerable hiring requirements. EORs work differently in this respect. They are ready to work with as few as one or two employees, making them an excellent solution for companies looking to expand.
Based on your business goals and requirements, you can choose to partner with either a PEO or an EOR.
If you are interested in working with a reputable company for expert and hassle-free global expansion solutions, look no further. At Starkflow, we work as an EOR, and by partnering with us, you can hire from around the world. We're also affordable and easy to work with. Contact us now!