What is PEO?
PEO services are becoming increasingly popular this year. A professional employer organization (PEO) is an organization that provides human resources (HR) outsourcing services to businesses. In this arrangement, the PEO shares all of the business risks with the other businesses and obtains lower-premium health and workers’ compensation insurance plans. Additionally, the PEO remits business taxes under its own employer identification number (EIN) instead of the businesses’. If the PEO’s state unemployment tax rate is lower than the businesses’, the businesses will be taxed less.
PEOs specialize in connecting small businesses with health and business insurance plans that they might otherwise struggle to afford. The PEO should also handle payroll on behalf of the businesses, and the businesses can add even more HR services to their contract if they desire.
Although your PEO is your co-employer, it won’t have any power over how you run your business. Yes, it can step in for whatever HR needs you to desire, but it can’t execute your actual work tasks for you. Even with your co-employer arrangement, you can continue to run your business exactly as you have been.
That said, it’s understandable to worry that a co-employer could overtake your business affairs. This outcome is highly unlikely, and it’s guaranteed not to happen if your PEO is certified by the IRS or Employer Services Assurance Corporation. PEOs with these certifications must adhere to rigid standards that make for trustworthy company affairs.
THE MAJOR DIFFERENCES BETWEEN PEO SERVICES AND EOR SERVICES
PEOs and EORs have a few important distinctions. PEOs mostly handle HR functions for businesses that already own entities, while EORs provide employment services without requiring companies to open their own entities.
In general, if you do not own an entity in the country where you want to employ a worker, you then need an EOR. On the other hand, if you are working with a global employment partner and they require you to open your own entity before you can hire workers, that partner does not actually provide EOR services.
If broken down into 3 differences in services between PEO Services and EOR Services
- Structure
PEOs and EORs are both types of employment organizations, but they serve different purposes.
PEOs act as your co-employer, meaning you share all risks and liabilities with them. This is why PEOs can help manage your risks, such as facility security and workplace safety.
EORs, on the other hand, are your legal substitutes for employee-facing matters. This means they are fully responsible for and liable to your employees.
- Services
A PEO is great if you want a service to handle your payroll, benefits administration, taxation, workers’ compensation, and risk management. A PEO can provide access to higher-quality insurance with lower premiums.
An EOR can also offer all the aforementioned services, though it often takes on fewer tasks than a PEO. Your EOR may help you hire temporary employees or independent contractors.</