Many use the terms EOR (employer of record) and PEO (professional employer organization) interchangeably, perhaps understandably, considering the similarity between the two. However, these entities differ significantly. EORs provide several advantages and benefits you won't receive with a PEO.
Before we examine the differences between the terms and services, let's look at each service separately.
A professional employer organization (PEO) is a co-employer acting as your company's outsourced human resources department. A PEO handles:
With a PEO, you hold and sign employment contracts while the PEO provides HR support.
On the other hand, an employer of record (EOR) is a third-party contractor responsible for employment law and tax compliance in the locations where their clients have employees. An EOR is the full legal employer of your company's workforce, especially a distributed one.
An EOR provides:
An EOR is the employer as far as human resources activities are concerned. You and your company provide and manage the work.
An EOR includes the services of a PEO but with additional elements that lower your long-term costs and reduces your liability.
EOR
PEO
EOR Advantages
EOR Disadvantages
PEO Advantages
PEO Disadvantages
An employer of record provides services that increase your ability to hire and manage remote teams, especially internationally. For example, a global expansion typically requires creating a local business entity in each country you want to hire and operate. However, when US-based countries can legally avoid this requirement by contracting with an EOR. They become your employer of record, register your business in each country, and recruit, hire, and maintain HR compliance according to local law.
Outsourcing human resource functions increases efficiency and efficacy, especially for organizations trying to follow the rules and regulations of multiple countries. An EOR can hire in other countries and jurisdictions where you might be less knowledgeable about local customs and laws. The EOR keeps you legal and working with the best talent available.
Improve Cash Flow
An EOR improves your cash flow and saves you money over the long term by providing expert administration, including recruitment, hiring, termination, and logistics. An EOR performs all the services of a PEO while removing much of the liability from your company. The EOR is the employer regarding compliance, taxes, and payroll.
Enable Business Registration
Non-domestic entities are required to register their businesses before operating in foreign countries. These processes vary by location but are almost always complicated. An EOR takes your place as the legal employer within that jurisdiction.
Reduce Liability
With a PEO, you share the employment liability, opening you to compliance problems. An EOR takes full responsibility for employment, reducing your liability within each country and saving legal and regulatory costs.
For example, an EOR helps you avoid employment misclassification, which many companies try to use for cost savings. They hire individual contractors yet treat them as employees, bypassing the tax structure of the country of operation. Unfortunately, if caught, they will owe a significant tax debt and penalties. A PEO may not be able to shield you from this issue. An EOR ensures you never fall into this trap.
Provide Competitive Benefits
EORs can provide more competitive benefits packages than PEOs because it has the bargaining capacity of a large company. If you want to offer a pension plan, you need an EOR. This same EOR assumes responsibility for complying with local withholding and tax contributions.
An EOR is better for your company if you plan international expansion. An EOR solution provides compliance support, reducing your liability in each country where you operate. In addition, it provides all human resources functions such as hiring, termination, and disciplinary action. You do not need an HR department. The EOR takes care of all of that for you.
EORs handle all contracts, taxes, payroll processing, and other administrative tasks. You can hire the best talent no matter where they live with an EOR to manage local equivalents of workers’ compensation, insurance claims, and various types of leave.
Unlike a professional employment organization, an employer of record like Worca delivers comprehensive HR and business operations.
