EOR vs. PEO: What’s the difference?
You’re a growing company and business is good. But all those hours fretting over payroll processing, tax withholdings, and countless other human resource riddles is yanking valuable time away from maintaining all that hard-earned momentum.
Luckily, companies can delegate their biggest HR and compliance tasks to services that can legally help hire employees across the globe, pay them, and automatically manage their benefits.
These services are typically available through either a PEO or EOR. But what’s the difference? And which is right for your business? Follow along for a quick primer on what to keep in mind.
What is a PEO?
A Professional Employer Organization (PEO) is a third-party firm companies can use to offload HR tasks. PEOs act as an employee’s co-employer and handle services like paying employees, monitoring compliance, advising on sensitive employment issues, tax filing, and administering benefits. In this employment arrangement, the PEO and your company are jointly responsible for your workforce. You can delegate administrative tasks to PEOs to free up focus on the day-to-day management of employees.
What is an EOR?
An Employer of Record (EOR) is a firm that hires employees on a company’s behalf. As the sole employer of its workforce, EORs allow companies to hire overseas without needing to set up a legal entity or business registration. While companies still manage employees’ day-to-day projects, EORs assume legal responsibility for handling payroll, employment contracts, benefits (including leave, pension, workers’ compensation, health insurance, etc.), and tax withholdings. By tapping an EOR to serve as the de facto hirer in a foreign jurisdiction, companies can minimize compliance risk without having to master international labor laws.
PEO vs. EOR
While PEOs and EORs can handle similar HR functions, they have key differences. The main distinction to keep in mind: PEOs hire with you, EORs hire for you.
But here’s a more detailed comparison:
PEO
EOR
Co-employer (shares the legal liability)
Sole legal employer (assumes all liability)
Requires companies to set up their own entity for hiring abroad
Allows companies to hire abroad without their own entity
Can support businesses as they scale within their current market
Good for hiring in a new market but costs outweigh setting up a legal entity as headcount grows
Supports domestic hiring
Supports global hiring
Can charge on a per employee per month basis or as a percentage of payroll
Can charge on a per employee per month basis or as a percentage of payroll
When to use a PEO vs an EOR
Both structures can serve as a handy extension of your HR department, taking care of time-consuming onboarding, payroll, benefits, taxes, and reporting busywork that frees up valuable focus for your business needs. When deciding between a PEO and EOR, these are the questions you should keep in mind.
Are you hiring domestically or internationally?
One option for hiring abroad is to set up a legal entity where the employee is located. This can take up to six months to establish and usually requires registration fees. EOR services, on the other hand, can onboard an international team in a matter of days. So if you’re looking for global expansion while delegating HR tasks to local experts on global employment laws, you may want to go with an EOR.
PEOs offer a breadth of services domestically. With the right solution, you can access large group health plans that are typically less than what you’d pay for small group plans. Plus, PEOs automate local tax compliance while offering HR advisory services to support personnel issues, making it easy to hire anywhere across the country.
Do you want to hire an HR manager?
Another consideration is whether you want your service to supplement the work of HR managers, or whether you want to put off hiring HR staff in the first place. PEOs and EORs both allow businesses to rely less on HR staff by taking on HR tasks like handling, compliance, and benefits administration.
PEOs can also be a nice addition to HR managers who want to focus on strategic projects, while the PEO, as co-employer, automates more administrative tasks like state and local tax accounts.
If you hire an international employee through an EOR, you likely won’t need to hire an in-house HR manager in their country, because the EOR will serve as the expert on your company’s behalf.
What are your company’s growth plans?
Both PEOs and EORs can accelerate your hiring plans while reducing the complexity of HR tasks. But think about whether you’re looking to scale domestically or abroad. While many companies use both services, PEOs are better suited to support expansion within the native country of your business’ headquarters, especially if you’re hiring in new states. Whereas if you use an EOR, you can quickly hire overseas without fretting over global compliance issues.
However, if you’re using an EOR to hire internationally, at some point it may be more cost-effective to set up your own entity and hire local HR managers instead. So look out for solutions that allow you to transition from an EOR into your own business structure without completely overhauling the systems you use.
Managing your HR tasks—PEO, EOR, or both—with Rippling
Rippling has both a PEO and EOR that can automate your company’s most complicated HR tasks. Rippling’s services can automate payroll, benefits administration, regulatory compliance, and much more.
Rippling PEO allows users to run payroll in 90 seconds, manage all employee benefits in one place, quickly onboard new hires, and even manage laptops, apps, and other employee devices. Companies with 50 employees can expect to save tens of thousands on benefits, all while getting round-the-clock access to HR experts tracking compliance for different employment laws.
Then there’s Rippling EOR, which allows companies to manage a global workforce in one platform. You can:
- Automate global compliance work.
- Pay employees alongside contractors in local currencies—in one single pay run.
- Calculate and file taxes on your behalf.
- Build custom workflows to alert employees of changes in payroll.
What’s more, both Rippling offerings support every stage of your company’s growth. Your business may expand to the point that you decide an in-house HR department is more cost-effective than a PEO. With Rippling, you can simply turn the PEO off and maintain access to the other features on the platform, without losing any employee data or integrations.
And Rippling EOR is built on top of native payroll rails, meaning when it comes time to set up a legal entity abroad, you can seamlessly transition from an EOR to Global Payroll through your own entities in minutes.
Whether you decide on a PEO or EOR, Rippling can adapt to your changing HR needs without ripping out and replacing systems—all while taking responsibility for all the administrative tasks that keep your workforce up and running.
