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If you own a small business or lead hiring and human resources for one, you might have heard the terms Employer of Record (EOR) or Professional Employer Organization (PEO). These words might have been thrown around more frequently if you hire in more than one country or city (or state). If you don’t use one, you might be curious about the benefits. If you do use one, you might be wondering if you made the right choice. We look at both of these models, and the similarities and differences between them. 

What is an EOR?

An Employer of Record (EOR) is an entity that handles global employment and payroll for employees on behalf of another company. The EOR takes full responsibility for employment-related tasks including administrative and compliance tasks. For example, an Employer of Record would handle payroll administration and compliance. They would also be responsible for ensuring that all contracts are in compliance with local law and they will act as the liaison between the company and the local government. If you hire employees remotely in multiple countries, the Employer of Record would be responsible for setting you up to legally do business in all of the countries where you have employees. It doesn’t matter if you are hiring just one remote worker to fill a specific function or a small team of 5-10 people that will function as a department — you can use an EOR. 

What is a PEO?

Professional Employer Organizations (PEOs) are organizations that frequently partner with small and medium-sized businesses to manage their HR administrative tasks. This allows the business to focus on growth and development. Some PEO’s claim that using one can make a company 50% less likely to go out of business. With the high rate of small businesses failure in the first 5 years, this can be a pretty compelling value proposition. 

PEOs can be cost-effective and allow businesses to shift HR responsibilities to the PEO while retaining control over their operations. 

It is important to know that when you retain a PEO you enter into a co-employment relationship. The company and the PEO are sharing certain employment responsibilities. The PEO actually becomes an Employer of Record for the client organization’s employees. The one thing that a PEO does not do that an Employer of Record does is set up business entities in other countries. That obligation still falls to the business, which can result in higher costs for the business if they want to hire abroad.

What are the biggest differences between an EOR and a PEO? 

The biggest difference between these two entities is how employment is handled. In the case of an Employer of Record, some of your employees (usually those working in another country) are put on their payroll. In contrast, a Professional Employer Organization takes on all of your employees to provide all human resources related functions. As the hiring organization, you hold employment contracts when working with a PEO. When you work with an EOR they hold the employment contracts, but employees still work for you and you retain all IP, creation processes and operational control. 

How do you decide if an EOR or PEO is right for you? 

There are a few key questions that will help you determine if an EOR or a PEO is the right way for you to go. 

What are your business needs?

If you are hiring remote workers around the world, an EOR might be the best way to go. This is because the EOR will handle all the legal setup in each country where a PEO does not. This can save you a ton of time and money. If all or most of your employees are in the same country as your company (for eg., a US-based company hiring workers in other US states), a PEO might be the way to go. 

Another note is on the subject of insurance. An EOR will generally provide you with liability insurance and worker’s compensation insurance; a PEO will require you to pay for these. This can make the cost of working with a PEO higher than an EOR in some cases. 

How many employees do you have?

Many PEOs require at least 5-10 employees and some have rules about the employees being related. This means if you have a family business and want to use a PEO you might need to have a bigger family or a few other folks in the mix. On the contrary, you can use an EOR even if you only need them for one employee in another country. 

Do you need a replacement for your HR services or a complement to them? 

One of the key differences between the EOR and PEO is that PEOs handle all human resources-related services as a co-employer, whereas EORs do not. If you are using an EOR you will probably need to hire someone to oversee your HR functions and ensure that the other aspects of your human resources needs are being met (like HR strategy, Work Performance, and Culture). An EOR is the intermediary employer of a company, and handles all HR admin tasks (like compliance, contracts, taxes and payroll), while the company takes care of the operational part. An EOR like Thera can already help you with benefits, but other functions like time and attendance tracking, performance management, and others are a responsibility of the company. 

Whatever your needs are, Thera can help

From onboarding and local compliance, to payroll and benefits, our global infrastructure makes sure you get all you need to hire remote talent, in over 160 countries. When you go with us as your EOR, you save time and money when growing your international team, by not having to set up subsidiaries and by getting locally-compliant contracts in minutes. Book you demo below to see how we make the democratization of global employment happen.