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

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 are pulling 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 administer their benefits. These services are typically available through either a Professional Employer Organization (PEO) or an Employer of Record (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 company that enters into a co-employment arrangement with your business. In this setup, the PEO becomes a co-employer, sharing certain employer responsibilities. The PEO handles various HR services such as payroll and tax administration, employee benefits management, risk management, and compliance support. This allows your internal team to focus on core business activities while the PEO manages administrative HR tasks.

PEO services are particularly beneficial for businesses that want to offer competitive benefits to their employees without the overhead of a full-fledged HR department. By pooling employees from multiple companies, PEOs can leverage better rates for benefits and insurance, making them an attractive option for small to medium-sized enterprises.

What is an EOR?

An Employer of Record (EOR) is a firm that hires employees on a company’s behalf. As the sole legal employer of its workforce, the EOR allows 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 processing and tax compliance, benefits administration, employment contracts, and ensuring compliance with local employment laws.

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. The EOR payroll system ensures that employees are paid accurately and on time, adhering to all local regulations.

EOR vs. PEO: Key differences

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.

Here’s a more detailed comparison:

What services do EORs and PEOs offer?

Both EORs and PEOs offer a range of services designed to simplify HR management. Here's a breakdown of the main services provided by each:

EOR services

• Global hiring and onboarding: Facilitates the process of hiring employees in different countries without the need to establish a local entity
• Payroll processing and tax compliance: Manages all aspects of payroll, ensuring compliance with local tax regulations
• Benefits administration: Provides access to employee benefits and handles the administration of these programs
• Employment contracts and compliance: Drafts and manages employment contracts in accordance with local employment laws

PEO services

• HR management and consulting: Offers support in developing HR policies and provides expertise on HR functions
• Payroll and tax administration: Handles payroll processing and ensures compliance with tax obligations
• Employee benefits management: Manages benefits administration, giving your employees access to health insurance, retirement plans, and more
• Risk management and compliance support: Assists with compliance related to workplace safety and other regulations
• HR outsourcing: Can take essentially all administrative HR tasks off your team’s plate, freeing up time and resources for value-adding, strategic work

PEO vs EOR: How to choose the right option

Both structures can serve as a handy extension of your HR department, taking care of time-consuming onboarding, payroll, benefits, taxes, and reporting tasks that free 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?

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. EOR services can onboard an international team quickly and efficiently, without the need to set up a legal entity where the employee is located—a process that can take months.

PEOs offer a breadth of services domestically for US companies. With the right solution, you can access large group health plans that can be less expensive than 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, instead outsourcing HR for the time being. PEO services can be a nice addition to HR managers who want to focus on strategic projects, while the PEO automates more administrative tasks like setting up 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?

Think about whether you’re looking to scale domestically or abroad. While some companies use both services, PEOs are better suited to support expansion within the US, especially if you’re hiring in new states. Using an EOR, you can quickly hire overseas without worrying over global compliance issues.

However, whether you use a PEO, an EOR, or both, at some point it may be more cost-effective to set up your own entity and hire local HR managers instead. Look for solutions that allow you to transition into your own business structure without completely overhauling the systems you use.

Managing your HR tasks—PEO, EOR, or both—with Rippling

Rippling offers 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.

With Rippling PEO, you get:

• HR, IT, and Finance in one platform
• Streamlined payroll processing
• Powerful and customizable reporting on any employee data
• Remote team management features, including state and local tax registration, digital onboarding, and app and device management
• Access to top-notch benefits plans with below-average, predictable renewal rates
• Automatic flagging for potential federal, state, and local compliance infractions, along with recommended action plans 
• Automated processes, including ACA and COBRA administration, anti-harassment training, and distributing digital labor law posters to your employees
• Access to hundreds of comprehensive HR resources, guides, and templates

Then there’s Rippling EOR, which allows companies to manage a global workforce in one platform. You can:

• Onboard in minutes. Hire and onboard global employees to maximize productivity on day one. Rippling handles everything from benefits enrollment to assigning required trainings.
• Pay locally in days—not weeks. Pay all of your employees around the world without delay. Rippling does the calculations and money movement for you. You’ll be free to focus on what matters.
• Automate global compliance. Double-checking compliance risks takes time. Rippling runs securely in the background, continuously flagging potential risks.
• Unify HR, IT, and Finance. Data entry and duplicate systems waste time. Every team has one source of employee data, so speedy automation can take on manual work.

What’s more, both Rippling offerings support every stage of your company’s growth—it’s easy to switch off if you ever decide to move off the PEO. Unlike other PEOs that make this process painfully difficult, all you have to do is switch off Rippling PEO and transition seamlessly to our all-in-one workforce management platform. All your HR, payroll, and employee data stays safely stored in your account, and your integrations with other tools stay intact. Your employees can even keep using Rippling with the same logins as before, so there’s no interruption to their work.

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.

Rippling PEO is a modern, all-in-one, integrated solution—the easiest way to manage HR for startups & high-growth companies.

EOR vs PEO FAQs

Can a company switch from a PEO to an EOR?

Yes. Companies can transition from a PEO to an EOR, especially when expanding internationally. Switching allows businesses to maintain compliance with local employment laws without establishing new legal entities.

Which is more cost-effective: PEO or EOR?

The cost-effectiveness of a PEO or EOR depends on your business needs. PEO employers can be more economical for domestic operations due to shared resources. An EOR may be more cost-effective for international hiring by eliminating the need for setting up foreign subsidiaries.

Do small businesses benefit more from a PEO or an EOR?

Small businesses often benefit from PEO services when operating domestically in the US, as PEOs provide access to competitive benefits and HR services without significant overhead. An EOR is beneficial for small businesses looking to expand internationally without the complexities of establishing foreign entities.

What is co-employment?

Co-employment is a relationship where both the PEO and your company share employer responsibilities for your employees. This allows you to retain control over daily operations while the PEO manages administrative HR functions like payroll, benefits administration, and compliance support.

Can a company use both a PEO and an EOR?

Yes. Companies often use both services to support different aspects of their workforce. For example, you might use a PEO company to manage US employees and an EOR for international hires.

This blog is based on information available to Rippling as of October 8, 2024.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.