EOR vs. PEO: What’s the Difference, and Which Is Right for You?

Compliance is confusing. But that doesn’t mean it’s unimportant. In fact, it’s a critical issue, particularly when you’re dealing with unfamiliar laws in unfamiliar locations. That’s why the employer of record (EOR) and professional employer organization (PEO) exist. Acting as an employment partner, these entities exist to help businesses that hire and manage remote employees. They can both manage payroll, benefits, and HR support for your in-country employees.  But what’s the difference between PEO and EOR?

Though the terms are sometimes used interchangeably, they’re not the same. Here’s what you need to know.

What’s the Difference Between PEO and EOR? EOR vs. PEO:  What Are the Differences?

An EOR is a third-party vendor that navigates complex international labor laws to act as an employer on the client’s behalf. If you want to have a presence in other countries but don’t have the resources or know-how to take on the legal responsibility, an EOR is a great solution.

PEOs also handle admin, payroll, benefits, and compliance. However, the PEO and the client act as co-employers. Your business must be legally registered wherever you intend to use a PEO. That’s not the case with an EOR.

Both EORs and PEOs provide payroll, taxes, benefits, and compliance services to companies that employ workers across countries.

The main difference between PEO and EOR is that an EOR assumes the legal responsibilities as the employer. A PEO shares legal responsibilities with the hiring company.

Let’s break that down a little further.

The EOR deals with all the legal responsibilities, including insurance, taxes, compliance, contracts, documentation, and admin, while the client handles everyday responsibilities and activities. That means the EOR also takes on all the risks associated with compliance abroad, while the PEO shares the risks with you. The EOR is the official employer (hence the name “Employer of Record”).

EORs also emphasize compliance, whereas PEOs are more focused on general HR activities. A PEO offers services like professional development and employee growth activities. They may also assist with recruitment. With this option, you have greater control over options like health and life insurance and retirement plans.

However, an EOR still offers HR services like:

• Benefits management
• Payroll
• Administration
• Visa/work permit assistance
• Legal services and advice 

Benefits of EORs vs. PEOs

EORs handle cross-border hiring and employment.

When a company partners with an employer of record service, the EOR establishes a contractual relationship with the employees of the client company. The EOR then handles all of the administrative and compliance functions related to employment. This includes payroll processing, tax filings, and benefits administration. It allows the client company to focus on its core business functions and avoid the administrative burdens of being an employer.

In addition to taking on legal responsibility for employment, an EOR can also provide services such as recruiting, onboarding, and termination of employees. PEOs require in-country business entities to provide services. This means that the client retains control over employment-related decisions, such as hiring, firing, setting compensation, and day-to-day work activities.

This co-employment relationship requires a business entity within the same country as the PEO and the employee, a key difference from EORs. This can be time-consuming and logistically challenging because you’d have to create an entity in each country where you want to hire.

Legal compliance is easier with an EOR.

Since PEOs require a business to have an in-country entity and absorb legal responsibility for each employee, it is generally easier for hiring companies to use an EOR from a legal compliance perspective. 

More broadly, a PEO is generally useful for smaller businesses looking to scale locally within one country where they have an established entity.  

A global employer of record is useful for companies looking to scale broadly across multiple countries.

Save money.

While both an EOR and a PEO can help you save on costs, an EOR eliminates a large share of the financial burden by taking on the expenses of incorporation, legal compliance, and other administrative/HR costs.

You don’t need to incorporate or pay for expensive infrastructure—the EOR handles everything. It also frees up your internal resources.

Plus, costs tend to be more predictable, making it easier for you to budget and plan.

Enjoy greater flexibility.

With an EOR, you’ll be better equipped to scale globally. This is true whether you employ full-time or contract workers or a mixture of both.  Establish a presence in new markets, and grow your team with greater flexibility.

This helps accelerate hiring. It’s also less confusing since the EOR fully handles the processes; responsibilities aren’t shared between two partners.

You can still work with employees just as you have been all along. You just don’t have to worry about legal requirements that are unfamiliar to you.

Questions to Ask When Considering an EOR vs. PEO

Deciding between an EOR vs. PEO? Now that you understand the difference, here are some questions to ask yourself to help you choose.

Are you hiring internationally?

An EOR will help you navigate complex international laws. If you’re not legally established abroad, then an EOR will handle this on your behalf. Even if you’re working on establishing yourself abroad, an EOR can assist you temporarily.

Do you have a robust HR system in place?

A PEO typically helps with broader HR support, while an EOR provides some HR services and assists with compliance. 

What type of risk are you willing to take on?

EOR handles all compliance and associated risks. On the other hand, a PEO shares the risks with you.

Terminal’s Employer of Record Services

Terminal offers comprehensive Employer of Record services in more than 180 countries, including our markets across Canada, Latin America, and Europe

• Offload HR, payroll, and admin burden.
• Enjoy full management support.
• Curb costs.
• Reduce risks.

Learn more about our comprehensive EOR services or contact our team for more information about our hiring plans.

Note: You can still hire full-time engineers through Terminal via our Hire Direct option without using us as your EOR. You can also use your own EOR.