Key Differences Between EOR and PEO

As businesses look for ways to expand into international markets, it’s essential to understand the different approaches to global employment and payroll. Two common strategies employed by businesses are using an Employer of Record (EOR) and a Professional Employer Organization (PEO). To get the most out of your global expansion, it’s essential to understand the differences and decide which strategy is the best fit for your business. In this article, we’ll take a close look at the key differences between an EOR and a PEO.

Understanding EOR and PEO

At the most basic level, both an EOR and a PEO serve as intermediaries between a company and its employees. However, their roles, responsibilities, and benefits differ significantly. Understanding the distinction between these two methods is crucial in making an informed decision about your international expansion strategy.

Employer of Record (EOR)

An EOR takes on the legal responsibility of employing your workers. This means that they handle all aspects related to HR, payroll, taxes, and compliance with local employment laws. You can learn more about EORs from Skuad’s detailed blog post.

As Skuad discusses in another insightful article, businesses might consider hiring employees through an EOR instead of contractors for several reasons, including compliance with local laws, simplified payroll, and improved talent retention. EORs can be especially beneficial for paying international contractors, as outlined here.

Professional Employer Organization (PEO)

On the other hand, a PEO provides services under a co-employment model where both the PEO and the client company share certain responsibilities for the employee. The PEO becomes the employer for tax and insurance purposes, while the client company maintains control over the employee’s roles and responsibilities.

Key Differences Between EOR and PEO

When comparing EOR and PEO, the differences primarily lie in areas such as employment relationship, range of services, geographical reach, and responsibility level.

Employment Relationship

One significant difference between an EOR and a PEO is in the nature of the employment relationship. While an EOR fully employs workers on behalf of a client company, a PEO co-employs them. This means that in a PEO model, companies share employment responsibilities with the PEO, while in an EOR model, the EOR assumes full employment responsibility.

Range of Services

EORs typically offer a broader range of services than PEOs. Beyond payroll and tax compliance, EORs often handle aspects such as visa sponsorship and immigration support. For a deeper dive into the pros and cons of hiring international employees with an EOR, you can check out this informative blog post.

Geographical Reach

While both EORs and PEOs allow businesses to hire employees globally, EORs tend to have a more extensive global reach. EORs can help you carry out global expansion without the need for setting up a subsidiary, as discussed in this helpful article.

Responsibility Level

EORs usually take on a higher level of responsibility than PEOs. For instance, an EOR is responsible for ensuring compliance with local labor laws and regulations, reducing the risk of non-compliance for the client company.

Making the Right Choice: EOR or PEO?

When deciding between an EOR and a PEO, it’s essential to consider various factors such as your business objectives, expansion plans, and resource availability. To help you make an informed decision, Skuad has put together a guide on factors to consider before choosing an EOR or a PEO.

It’s also important to carefully select your EOR service provider. Skuad offers comprehensive EOR services, handling everything from onboarding to payroll, to ensure compliance with country-specific employment laws and tax regulations.

Conclusion

Both EOR and PEO models offer unique advantages for businesses seeking to expand globally. Understanding these key differences can help you make a decision that aligns with your company’s needs and objectives. Remember, your choice between an EOR and a PEO should support your overall business strategy and facilitate seamless global expansion.