EOR vs. PEO: Which is right for your business?

A global business is easier to manage with the proper support. An employer of record and a professional employer organization both provide excellent options with distinct advantages. From handling HR tasks to navigating compliance, these services do it all. 

Read on to learn about EORs versus PEOs and pick the right option to support your global growth strategy.

What is an EOR?  

An EOR is a third-party organization to employ your workforce. It manages the ins and outs of global employment relationships, from compliance and payroll to taxes, insurance, and benefits.

An EOR acts as the legal employer, so your company can expand and engage a global workforce without establishing local entities in every country where you’d like to hire employees. A local entity is a business structure you set up in another country where you want to hire employees. Although some local entities are legally and financially tied to their parent companies, others—called subsidiaries—are not.

Your company will enter into a service agreement with the EOR that is binding as long as your company needs the workers’ services. The EOR is effectively a workforce services vendor. The EOR then hires employees to perform services for your company, complete with employment agreements. The EOR takes full responsibility for employment liabilities, though you share in the financial responsibilities of liabilities that arise out of your engagement with an EOR.

An EOR is a simple way to promote compliance within your daily business operations, ensuring adherence with local labor laws without added work and stress in your day-to-day, allowing you to focus on growing your team and company. EORs in the United States and worldwide use direct, indirect, and hybrid operating models.

What is a PEO? 

A PEO partners with your business to collaboratively manage human resources tasks through a co-employment model. You oversee your co-employed staff’s daily work on the job while the PEO’s services cover HR responsibilities like compliance, payroll, and employee benefits.

Sharing responsibilities with a PEO saves you time and effort by streamlining administrative tasks. This lets you focus on core activities to grow your business. A co-employer like a PEO manages HR staff and services for you and allows you to provide competitive benefits and comply with local employment laws.  

Your company must be registered to do business in every state or country in which you’re using a PEO, and you remain liable for all employees in those jurisdictions. 

A PEO is not a global employer organization or agent of record. A GEO is an EOR that employs team members who don’t live in countries where the customer’s company is incorporated. An AOR is an individual or company authorized to act on behalf of another individual or company.

What’s the difference between EOR and PEO services?

Several crucial distinctions will determine whether an EOR or a PEO solution is right for your company. The best partner will streamline your HR processes, support your global or domestic growth, and help you achieve your goals. Here’s a detailed look at the key differences between these services:

Hiring scope 

An EOR acts as the legal employer, allowing you to hire team members worldwide. The EOR is responsible for administrative duties like employment contracts. A PEO partners with your business to handle HR services and admin while you handle the day-to-day management of your employees.

Number of workers 

When you choose an EOR, no minimum employee count is required. Conversely, PEOs often require at least five employees, sometimes up to 10. Because of this, EORs are often better suited for small businesses with limited resources and budget constraints. 

Employee benefits 

EORs provide comprehensive employee benefits packages, including health insurance and workers’ compensation. These packages are often available at competitive rates because EORs can buy in bulk from insurance providers. PEOs offer similar benefits to co-employees, often with perks like fitness plans and mental health checks. PEOs manage the entire benefits process.  

Compliance 

EORs take full responsibility for compliance with local labor laws. They handle all the legal and administrative tasks, so you don’t have to worry about non-compliance. Due to the co-employment model, PEOs share responsibility for compliance with the client company. The PEO can offer local expertise and advise you on compliance matters, but you’ll still need to ensure your business practices meet local regulations. In other words, you share the compliance risk with a PEO.

Business registration 

When you choose an EOR, you’re not required to have local entities in the countries where you want to employ staff, which allows you to easily manage a global workforce. If you work with a PEO, you generally can hire only in locations where you have a registered legal entity. 

PEO partner or EOR partner: Which is right for you? 

An EOR is a business that becomes the full legal employer of your worker. It handles all the HR functions you get with a PEO and more, taking care of hiring and employment contracts, day-to-day HR tasks, and business and insurance requirements. With an EOR, you don’t need a business entity in the country where you’ll be engaging full-time workers.  

Conversely, a PEO is like an outsourced HR department. They specialize in managing HR-related tasks while you oversee the day-to-day activities of your employees.

Your unique business needs and long-term vision will determine whether an EOR or a PEO better suits your company. An EOR is ideal if you want to build an international team and expand globally. It helps you work with talent worldwide and scale with speed and flexibility.  

If you want to outsource HR services while retaining more control over your team, choose a PEO. This option is excellent if you’re operating in your home country or countries where you already have entities. A PEO will optimize your HR functions while you focus on growing your business locally.  

FAQs 

What is a direct EOR operating model?

An EOR that incorporates or registers its own entity in the country where it provides services is using a direct EOR operating model. For example, an EOR uses a direct model when its Canadian entity employs people in Canada to work for its clients.  

What is an indirect EOR operating model? 

An EOR using an indirect EOR operating model provides services in countries or jurisdictions where it is not incorporated by leveraging local partners. For example, if an EOR partners with a Canadian company that hires people in Canada to work for the EOR, it’s using an indirect model. The EOR then provides services to its clients.

What is a hybrid EOR operating model?

An EOR may use both direct and indirect methods to provide client services. This is a hybrid model.

Build your dream team with Oyster 

Oyster’s comprehensive EOR solutions include compliant employment, seamless payroll, and benefits administration for global teams. With our platform, you can automate hiring, onboarding, and paying team members in over 180 countries and skip the hassle of setting up entities. Our quick and accurate services help you stay competitive in the global market. From legal-reviewed agreements to competitive compensation packages, you can rely on Oyster to keep you compliant and competitive around the world.

Ready to grow your business and simplify your global operations? Transform your hiring process with Oyster’s EOR services.

About Oyster‍

Oyster is a global employment platform designed to enable visionary HR leaders to find, engage, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.

Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.