PEO vs EOR: What's the Difference?

If you’ve ever scratched your head over HR jargon, you’re not the only one. With so many acronyms, the world of HR can feel like alphabet soup. Two terms that often are mixed up are PEO (Professional Employer Organization) and EOR (Employer of Record). These are two different types of services that businesses can use to externalize the management of many common HR tasks. As a business owner there are some key differences between the two that are important to learn.

What is a PEO?

Let’s begin with PEOs, or Professional Employer Organizations. If you’re a small or medium-size business owner, chances are you’re juggling a ton of tasks at once. As you grow and scale, HR responsibilities not only become more overwhelming and cumbersome, but they also become increasingly important. This is where a PEO can help!

Essentially, a PEO is like an HR sidekick that partners with your company to handle time-consuming tasks like:

• Payroll processing

• Benefits administration

• Tax and unemployment insurance filings

• Certain aspects of risk management, such as workers compensation claims  

• Regulatory compliance assistance

PEOs are commonly seen in the United States and can support small businesses through a co-employment relationship. Businesses, as a result, may have access to benefits and can outsource HR functions to a single service provider, which makes it easier to manage their workforce.

What is an EOR?

Now EORs, or Employers of Record, are a bit different. If you’re a growing startup looking to expand into international markets, hiring employees can be a maze of confusing legalities on top of cultural differences. This is where an EOR comes in handy.

An EOR is a service provider that takes on the legal responsibilities and obligations of being an employer for a company's workers. An EOR typically does this in an international market, where that business wants to hire employees but doesn’t have the legal or corporate presence to do so.

This means that the EOR becomes the official employer for payroll, benefits, tax, and compliance purposes while the workers themselves perform their duties for the client company.

By using an EOR, companies can outsource the complexity of being an employer in places where they don’t have the resources to take on that burden.

PEO vs EOR: Advantages & Disadvantages

Now that we understand what PEOs and EORs are, let’s break down the key advantages and disadvantages of both so you have an easier time determining which is best for your company.

Advantages of a PEO

We already hinted at the benefits of a PEO when we explained what they do. But let’s get even more specific on how they can help small and medium-sized businesses: 

1. Access to group health benefits: PEOs can help companies access benefits that are usually only available to larger employers, which can provide a number of advantages. For small businesses looking to strengthen their benefits strategy, this can be a real game-changer.

2. Specialized expertise: PEOs often have HR professionals who can provide guidance and support for various HR-related matters, such as employee relations, compliance, and training. 

3. Streamlined processes: PEOs can handle a number of administrative tasks, such as payroll, tax withholding, and benefits administration, allowing businesses to focus on their core activities. Moreover, a PEO provides compliance support, which can be a relief when dealing with ever-changing employment regulations. With a PEO, you can have more confidence that you’re operating in line with best practices.  

Advantages of an EOR

Now that we've looked at the advantages of a PEO, here's a brief over of the upsides typically associated with EORs:

1. Quick access to talent: EORs can provide companies with immediate access to a global talent pool, which can be beneficial for businesses that need to scale up quickly or require specialized skills. Now, it’s important to note that an EOR is not a business that finds talent — that’s a staffing agency. But when you're ready to make international hires, an EOR can get them up and running.

2. Cost savings: Contracting with an EOR to hire employees means that businesses don’t have to spend the time and money to establish a business in a foreign market. 

3. Multi-country compliance: It’s no mystery that international employment can be very complex. What’s great, though, is that EORs have the experience and knowledge to help manage global compliance. That means companies who partner with EORs don’t have to familiarize themselves with all the aspects of corporate and employment regulations in other countries.

Disadvantages of PEOs and EORs

As you might have gathered, both PEOs and EORs have a number of great benefits for small and medium-sized businesses. But it’s also important to understand some  potential disadvantages and weigh them against what your business needs.

Some PEOs may not cater to businesses of all sizes or industries. This lack of flexibility can limit the options available for certain companies.  

While EORs can streamline global hiring, they may focus primarily on acting as the legal employer, and may not offer many additional HR services. Likewise, If an EOR is not managed correctly, there can be legal and compliance risks for companies. It is important to ensure that the EOR is compliant with labor laws and regulations.

How Justworks Can Help

PEOs and EORs can both be great options for a business. If you’re a small or medium-sized business operating in the U.S., Justworks PEO can help streamline running your business. Small businesses partnering with Justworks gain access to vital services including payroll processing, benefits administration, compliance support, and user-friendly HR tools. Justworks PEO also offers international contractor payments in 30+ countries, and our EOR services are launching soon.

Ready to get started? Contact us today!