When it comes time to choose a business partner who can help manage your company’s employment and payroll needs, you will likely come across two very different options: employer of record or PEO.
So, what’s the difference?
This article will show you the main differences between these two popular options to expand your business abroad.
Employer of Record VS PEO: Main Differences
Before we start talking about the differences between EOR and PEO, I want to introduce a little bit about both options.
EOR is known as Employer of record and in essence, it is a solution that allows companies to hire employees in another country without opening a company, thus avoiding the opening costs and the long time required.
This model has recently risen to prominence, especially during the pandemic that has forced millions of people to work from home. This model is very useful if companies want to speed up the process to start a business in another country and to legally hire employees.
A PEO (Professional Employer Organization), on the other hand, is a company that provides comprehensive HR services to companies, such as payroll processing, benefits administration, regulatory compliance, tax filings, and more. A PEO serves as an outsourced HR department for a firm, allowing internal teams to focus on their main tasks.
It is a solution for companies that already have a legal entity and that need to outsource those time-consuming tasks like payroll and HR. It is useful because it helps to guarantee compliance with local laws and avoid risks that could bring to the closure of the company.
But let’s go back to our main topic and let me introduce you to the main differences between EOR and PEO.
If you use a PEO to manage employees’ payroll, you have to make sure that your organization is registered where your local team is.
An EOR, on the other hand, allows you to hire workers in countries where your company isn’t registered. Getting your business registered in another country can be an easy or hard procedure. This changes based on the type of entity that you have and the location where you want to expand.
In cases where the company registration procedure is long and costly, an EOR can be the best solution to save money and start your business in a short time.
EOR and PEO are similar because both are about employment, HR, and payroll, but legally the things are different.
When you engage an employer of record to hire employees, the employer of record becomes the legal employer and so it is responsible for the employment relationship and to process payroll, income tax, and mandatory contributions.
A PEO is a co-employment solution. While your company will be responsible for hiring and onboarding employees and for all the employment relationships, the PEO is responsible for managing payroll, mandatory contributions, tax declaration, so to make sure that your payroll is compliant with local laws and regulations.
With a PEO, you don’t just need to get the right business license to hire non-local workers; you also need to keep track of all legal requirements. Compliance is quite difficult: you must become familiar with labor laws and regulatory compliance paperwork on your own. And if you make a mistake or forget to fill out a form, you’ll be held accountable.
On top of payroll processing, benefits administration, and employee contracts, EORs handle all legal compliance papers. This means you can hire around the globe without having to worry about local labor laws, tax filing, or the word “compliance” again.
Why do you need an EOR or PEO?
When employing workers in a remote location, the primary rationale for establishing an Employer of Record (EOR) is to avoid regulatory and economic barriers. For non-resident firms doing business, each country (and some states or regions) has its own employment, payroll, and work permit rules. The difficulty of adhering to those standards can be a significant barrier to cross-border corporate expansion.
The employer is the solution for your company if you don’t want to set up a local legal entity but you need to hire employees and be fully compliant with local laws.
On the other hand, if you already have a local entity in the country where you want to expand or you are planning to open a local entity, a PEO can be the best solution for you to manage HR and payroll in full compliance.
Payroll, benefits, compliance, and workers’ compensation are just a few of the administrative HR responsibilities that a professional employer organization (PEO) may help with.
A PEO can take over and/or automate responsibilities including administering payroll, enrolling employees in benefits, monitoring compliance with current labor and employment laws, and more by co-employing a company’s staff.
In conclusion, these solution allows you to reach different goals and you have to choose the best based on your business needs. But both of them are extremely useful if you need to expand your business abroad.
Employer of Record and Professional Employer Organization (PEO) have their pros and cons, and there are some key distinctions between these two options that are worth noting.
We hope that this article helped you to clarify these differences and will help you to choose the best option for your business expansion.
If you’re interested in learning more about our Employer of Record or PEO, or if you would like to get a quote for how much it would cost to outsource employment and payroll, feel free to contact us today. We would be happy to answer any of your questions.