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Originally Posted On: https://www.globalexpansion.com/blog/peo-vs-eor
Building a global workforce requires your global HR team to be experts in complex international tax and labor laws, along with handling global HR tasks – such as global payroll and global benefits. This can become a large financial investment that demands countless hours of ongoing administration. Thankfully, there are ways to take some of the burden off your shoulders.
Global Employer of Record (EOR) and International Professional Employer Organization (PEO) providers are third-party entities that can help your business handle HR needs and manage your team more effectively. Both have been gaining traction over the years as the world is becoming a global village.
Data suggests that the EOR market will grow at a Compound Annual Growth Rate (CAGR) of 6.9% to reach $6,794.5 million by 2028. The PEO market is expected to grow at a faster rate of 11.54% to reach $147,134 million by 2030.
What is an Employer of Record?
An Employer of Record (EOR) is a third-party company that handles another business’s global HR and compliance tasks without requiring the business to establish an entity in a new country. The EOR will be the employer of your international team on paper, however, you will still be responsible for the day-to-day management of your team’s needs.
What is an International PEO?
An International PEO is a firm that also handles another company’s HR needs, only with the requirement that a company has a legal entity in a foreign country where it intends to expand or hire employees. So, if your business already has subsidiaries or branches in the foreign country in which you want to hire or expand to, then you will be better off working with a global PEO rather than an EOR.
Below, we will explain the difference between an international PEO and an EOR and tell you how to choose the right partner for your business.
The Main Differences Between EOR vs PEO
It is not uncommon for people to use the terms global PEO and EOR interchangeably. This is no surprise, given that these two entities share more similarities than differences.
The only difference between an international PEO and EOR is the requirement to have an entity in a foreign country. On one hand, an international PEO handles the global HR functions for businesses that already have entities in new countries. This means that if you want to enlist the services of a global PEO when expanding into new markets, you have to incur the cost of establishing an entity in the country you’re prospecting.
On the other hand, an EOR handles HR tasks relevant to a global workforce without requiring the client company to open an entity. For this reason, using an EOR is a faster and simpler way of legally utilizing a highly skilled workforce from anywhere in the world. Although the EOR will be your workers’ employer on paper, you will continue working with employees the same way you would if they were employed by you directly.
The slight difference between an EOR and a global PEO means you’ll get almost similar services when working with either. For instance, both offer the following services:
- Global HR services such as hiring and employee onboarding
- Global payroll and tax management
- Consultative services to guide businesses in managing your global workforce
- Compliance monitoring to ensure a business abides by in-country tax, labor, benefits, etc. regulations and policy
- Global benefits management
You do not necessarily get all the services that PEOs and EOR offer. You can specify what you want to outsource and adjust the needed level of support. The global HR services provider will make adjustments to your service agreement, detailing the specific services you will receive.
EOR / PEO Requirements
Before engaging in an EOR or PEO arrangement, you should take into account the following checklist:
- Ensure compliance with all applicable federal, state, and local laws
- Develop policies that adequately define the roles and responsibilities of both parties in the arrangement
- Clearly communicate expectations regarding benefits to employees under the agreement
- Draft a contract outlining the terms of the EOR/PEO relationship, including termination provisions
- Have an established process for sharing employee-related data between the parties involved in the agreement
- Monitor and review performance regularly to ensure that expectations are being met and that any issues or disputes can be addressed swiftly
- Create a system of recordkeeping to track all related documents, such as payroll records
- Maintain up-to-date insurance coverage for the business to ensure it is appropriately protected from any liability associated with the EOR/PEO arrangement
- Document all transactions related to the agreement for future reference
How to Choose the Right Partner
When deciding whether to use a global PEO or EOR, you should ask yourself a few questions. Answering these questions will help you determine which service best suits your organization’s needs. The questions include:
What are Your Business Needs?
When choosing between an EOR and a global PEO, your business needs should be the primary factor. For example, does your business need to open a physical store to serve customers better? Does your remote workforce need an office to meet and exchange ideas?
For instance, your business may need a physical store if you are operating under the buy online, pick-up in store model. In this case, it would be best to use a global PEO since you will establish physical entities in foreign countries. Likewise, a global PEO would be the better option if you need a dedicated office for your remote workforce.
Do You Have a Legal Entity in the Country You’re Hiring In?
If you want to hire employees in a country where you have no established entity, it would be best to use an EOR. EORs will help you legally bring skilled international talent on board without the stress and the cost of establishing an office in the country you intend to hire.
However, you should consider an international PEO if you already have a registered entity in the country or plan to establish one soon. An international PEO will suit you in this case, as it will take the local compliance guesswork out of the equation once you open up your business overseas.
How Quickly do You Need to Hire Employees in a New Country?
If you need to move quickly, an EOR is your best bet. The global service provider will help you hire international talent within days since there will be no need to incorporate your business locally. You will have no limit on which employee you can hire, giving you more control of the hiring process.
Are You Facing Immigration or Visa Issues?
An Employer of Record is the best option if you have problems hiring skilled candidates due to immigration or visa issues. An EOR will eliminate the need to go through the complex and frustrating visa and permit application process. The global HR services provider will hire candidates remotely and in their country of residence.
Do You Want to Decrease the Risk Footprint Associated with International Expansion?
Sometimes, international expansion can come with certain risks related to compliance issues like tax withholdings and adhering to international labor laws. An EOR will cushion you from such a risk footprint since the entity will be the record employer and will therefore be held liable for employee-related liabilities.
In case of violations of tax law, labor laws, and other compliance issues, the authorities will go to the EOR first.
Partner with Global Expansion for reliable International PEO and Employer of Record Services
Choosing the right global HR partner to help you manage your international employees could mean the difference between success and failure. You should assess all the options and determine which service provider best meets your needs.
If hiring international talent is on your bucket list, Global Expansion will be your best employment partner to help you meet your workforce needs. We offer complete international PEO and EOR services to help businesses hire, pay, and manage their international talent problem-free.
Check out the full scope of our services to see why we are the go-to company for international PEO and EOR services.