Difference Between EOR and PEO

As businesses grow and expand, they often find themselves in need of additional resources to manage their human resources functions. Two popular options for outsourcing these functions are Employer of Record (EOR) and Professional Employer Organization (PEO). While both offer similar services, there are key differences between the two models that businesses should be aware of before choosing which one is right for them.

What is an Employer of Record (EOR)?

An Employer of Record is a company that takes on the legal responsibilities of being an employer, including payroll, benefits, taxes, and regulatory compliance. Essentially, an EOR acts as the employer of record for an employee, while the client company retains control over the employee’s day-to-day work activities.

When a business hires an EOR, they transfer the legal responsibilities of being an employer to the EOR, while maintaining control over their employee’s work. The EOR will manage all aspects of employment, including payroll, taxes, benefits, and regulatory compliance. The client company will still manage the employee’s work activities, including work schedules, job duties, and performance evaluations.

One of the key benefits of hiring an EOR is that it allows businesses to expand their operations quickly without having to set up a legal entity in each new location. For example, if a company wants to open a new office in a different state or country, they can hire an EOR to manage the legal requirements of employing workers in that location.

What is a Professional Employer Organization (PEO)?

A Professional Employer Organization, or PEO, is a company that provides comprehensive HR services, including payroll, benefits administration, HR management, and regulatory compliance. When a business hires a PEO, the PEO becomes the employer of record for the client’s employees. This means that the PEO is responsible for managing all aspects of employment, including payroll, taxes, benefits, and regulatory compliance.

In addition to handling HR functions, a PEO also provides other services to businesses, such as employee training and development, risk management, and legal compliance. PEOs work with businesses of all sizes, but they are particularly popular with small and mid-sized businesses that may not have the resources to manage HR functions in-house.

One of the key benefits of hiring a PEO is that it allows businesses to outsource their HR functions to a third-party provider, freeing up resources and time to focus on their core business activities. Additionally, PEOs often have greater bargaining power when it comes to negotiating employee benefits and insurance plans, which can result in lower costs for the client company.

Key Differences Between EOR and PEO

While EORs and PEOs offer similar services, there are key differences between the two models that businesses should be aware of before making a decision.

1. Legal Relationship:

EOR: The EOR becomes the official employer of the business’s employees, taking on all legal and administrative responsibilities associated with employment.

PEO: The PEO becomes a co-employer of the business’s employees, sharing responsibility for HR, payroll, and compliance functions with the business.

2. Control Over Employees:

EOR: The business retains control over the day-to-day management of its employees, while the EOR handles HR, payroll, and compliance functions.

PEO: The PEO shares control over the day-to-day management of employees with the business.

3. Employment Structure:

EOR: The EOR manages a contingent workforce, which may include temporary, contract, or project-based employees.

PEO: The PEO manages the full-time, permanent workforce of the business.

4. Scope of Services:

EOR: The EOR provides services related to HR, payroll, and compliance, such as onboarding, benefits administration, tax withholding, and employment law compliance.

PEO: The PEO provides a wider range of services, including HR, payroll, compliance, employee benefits, risk management, and training and development.

5. Risk Management:

EOR: The EOR assumes all legal and administrative responsibilities associated with employment, reducing the risk for the business.

PEO: The PEO shares responsibility for HR, payroll, and compliance functions with the business, reducing some of the risks associated with employment.

6. Cost Structure:

EOR: The cost of EOR services is typically based on a per-employee or per-hour basis, making it easy for businesses to budget for these services.

PEO: The cost of PEO services is typically based on a percentage of the business’s payroll, which can make it more difficult for businesses to budget for these services.