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EOR vs. PEO: What Are the Differences in These Services?

Oct 17, 2023 | Business, Remote Work

What are the differences between an Employer of Record (EOR) and a Professional Employer Organization (PEO)? Which service do you need? How can these two types of organizations help your business to grow and thrive? If you are researching the best options for outsourcing your human resources, we’re here to help. This article will compare and contrast EOR vs PEO services.

Running a business, you understand the importance of your Human Resources department (HR). Without employees, you cannot operate or grow. Without your HR department, you cannot support the multi-faceted responsibilities of hiring employees. Human resources covers payroll, benefits, safety, conduct, and compliance with all applicable labor laws. They are there to ensure that your employees receive their benefits, are paid on time, and have someone to go to regarding human-related challenges.

Of course, not every company has an internal HR department for employee management. Outsourcing is often the best route to provide the best results and support for your employees. But whether you need a PEO or Employer of Record depends on how you plan to conduct your hiring and team-building.

What is a Professional Employer Organization?

A Professional Employer Organization or PEO is a full-stack talent management outsourcing service. A PEO is a separate company that deals exclusively with human resources for client companies. They offer a select to a full range of human resource management services, making it possible to outsource tasks that would usually fall to your HR department.

Outsourcing HR Services

In many cases, a PEO can become an auxiliary HR department so that your company does not have to hire talent management professionals or worry about routine human resource tasks internally.

In a more selective sense, it is also possible to outsource specific aspects of your human resource tasks for a PEO. They can augment a small or limited internal employee management team to ensure your company still benefits from full and well-managed employee relations.

Categories of PEO Services

Most PEO services are divided into categories based on the different tasks conducted by a company’s internal HR team. The exact divisions may vary by PEO but the following categories are common:

  • Human Resource Support
  • Payroll & Taxes
  • Recruiting & Training
  • Regulations & Compliance
  • Benefits & Wellness
  • Health & Insurance
  • Retirement Funds
  • Safety & Workers Comp

    PEO Recruitment officer conducts online interview with applicant via video conferencing.

    Recruitment and training is one of the service categories PEOs provide.

Small Business vs Niche PEO Services

Small businesses are the primary clients for PEOs because they need a full range of talent management support without building a full-sized HR department. However, PEOs also exist that cater to specific industries and specialize in the unique requirements of their niche, such as healthcare or logistics.

What is an Employer of Record Service?

An Employer of Record (EOR) acts as the legal employer for professionals who work for a client company. When a company needs to hire employees outside its current region or country, it must legally expand to become a legal employer in new areas. An Employer of Record makes it possible to hire foreign professionals without expanding your company to operate in each professional’s home state or country.

Out-of-state and Offshore/Nearshore Hiring

Let’s say a company based in Ohio wants to hire a professional who lives in California. They must be a California employer to hire this person, or the company can hire an EOR to act as the employer-of-record for California. The EOR will then take care of compliance with all the unique California labor laws while helping the client company properly manage and provide for their auxiliary employee.

The same is true if you want to hire across national borders. Perhaps your ideal candidate is located in Canada or across the world in Spain or Germany. An EOR that is already registered in the employee’s home country can act as their legal employer while the professional operates as a part of the original company’s team.

Providing HR Services

Here’s where an EOR might be confused for a PEO. When operating as the legal employer for a distant employee, an EOR is responsible for providing the employee with benefits and payroll based on the laws of their home state. For example, your EOR may handle connecting foreign employees with comparable health insurance, retirement benefits, and wellness perks available in their state compared to similar compensation available to your local employees. They will also ensure that your compensation and policies comply with labor laws in the foreign employee’s state.

In this way, an EOR operates as your HR department as well as the legal employer for those employees they hire on your company’s behalf.

EOR vs PEO: Hiring manager's hand picking floating image of person, digital concept of hiring global talent.

An EOR helps companies hire outside their region/country and legally expand to become employers in new areas.

The Differences Between EOR vs PEO

While both a PEO and an EOR can offer employee management services, complete or selective, they operate under very different circumstances. The most important differences in EOR vs. PEO services are where and how they offer HR-related services to your company.

Whole Company vs Select Employees

A PEO typically provides employee management services that benefit the entire company. They will take on things like payroll and benefits distribution for all employees. In many cases, they will take on the entirety of your HR operations and manage human resources for everyone on your staff.

An EOR only provides talent management services for the specific employees they hire on your behalf. They do this because HR requirements for foreign employees are unique and must comply with labor laws and standards in the employee’s home state. An EOR does not provide employee management services for the local or “home” branch of your company.

Local vs Foreign Services

A PEO offers services to companies that operate within their own nation or state. PEOs specialize in local human resource policies and compliance. They build teams designed to facilitate local businesses or, at most, businesses that operate across multiple states or regions within their own country.

In some cases, a large or international PEO may offer more widespread HR services but will likely pair service teams and business clients within the same regions.

In contrast, an EOR is only necessary when your company cannot legally (or easily) hire outside the boundaries of your local region. An EOR acts as your employer proxy in other countries or states where your company would have difficulty functioning as an employer on your own due to regulations or expansion requirements.

The Unique Applications of EOR vs PEO

Professional Employer Organizations and Employers of Record have unique applications that can be extremely useful to companies, depending on their HR needs. Here are some of the unique applications of EOR vs PEO services.

EOR vs PEO businessman touching a digital screen overlay depicting global HR management.

Modern online technologies from BrightR Limited can simplify HR systems. Human Resources (HR) management, people analytics, HR, recruitment, leadership and team building.

PEOs Expand Your HR Capabilities

PEOs make it possible to encompass a complete and talented HR department for your business, no matter how small or fine-tuned your business may be. Small companies benefit significantly from PEOs because they do not have to hire an entire department internally. Highly specialized firms also benefit from PEOs because they do not have to rebalance their focus to include employee management in a streamlined business model. However, outsourcing allows these businesses to access advanced compliance, benefits management, recruitment, training, etc.

Employers of Record Expand Your Hiring Scope

Employers of Record allow hiring outside of your company’s operational boundaries. You don’t have to become an international company to hire internationally. You don’t even need to register as an employer in multiple states. Employers of Record helps you to hire the best talent from all over the continent and the world, along with the HR services needed to be a good employer to professionals whose labor laws differ from local policies.

Companies Can Benefit from EOR vs PEO

Employers of Record and PEOs are crucial for modern businesses, expanding their hiring ability and optimizing employee management. PEOs can offer higher quality HR than they could through internal hires alone. EORs enable companies to hire and support top foreign talent regardless of borders. Whether you prefer EOR vs PEO services, both can benefit modern businesses in their own way. BrightR Limited is a skilled Employer of Record based in Ontario, Canada. If you are in need of Employer of Record services to expand your hiring horizons, contact us today.

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