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By 2026, the HR outsourcing market is expected to grow by US$10.90 billion. As businesses navigate the hiring landscape, HR outsourcing firms like Professional Employer Organizations (PEOs) have emerged as allies to support optimizing and improving day to day operations.
And then there are Employers of Record (EOR), which serve as a comprehensive service for companies aiming to expand internationally. Let’s brush over the definitions:
What is a PEO?
A PEO (Professional Employer Organization) is a strategic partner that handles your company’s HR functions - such as payroll, benefits, and compliance - while allowing you to retain control over day-to-day operations. By sharing employer responsibilities, a PEO reduces risk and frees up resources for business growth.
- What is it? A PEO acts as an outsourced HR partner
- Who is it for? Businesses without formalized inhouse HR functions
- How does it work? By forming a co-employment agreement, PEOs work closely with companies to manage a variety of HR-related functions.
- What does it handle? Payroll and payroll tax management, benefits administration, HR compliance, risk management and employee relations.
By partnering with a PEO, businesses can focus on their core operations without the worry of managing the more intricate aspects of HR.
What is an EOR?
An EOR (Employer of Record) is a service that enables businesses to hire and manage employees in any location, without the need for a local entity. By taking on full legal responsibility for employment, an EOR allows companies to streamline payroll, compliance, and benefits while focusing on business growth and operations.
- What is it? The Employment of Record (EOR) model managing companies through established international entities
- Who is it for? Global employers looking to outsource the employment of its staff overseas,.
- How does it work? By providing its own legal entities to employ staff internationally.
- What does it handle? The maintenance of normal working relationships with employees across borders through HR tech, visa support, benefits management, etc.
PEO vs. Employee Leasing and HR Outsourcing
While the concepts "PEO," "employee leasing," and "HR outsourcing" can be easily confused, there are differences that exist between them. Here’s what you need to know:
Professional Employer Organization
A PEO shares employer responsibilities with a client company though a co-employment relationship. The organization is directly responsible for managing HR functions and compliance on behalf of the client company
Employee Leasing
Also referred to as "staff leasing", employee leasing typically involves providing workers to a client company for a contractually agreed upon fee. The client company maintains control over day-to-day employee relations.
HR Outsourcing
HR outsourcing involves contracting specific HR functions out to external HR service providers, without forming a shared co-employment. Specific HR-related functions are subcontracted to specialized HR firms on an ad-hoc basis.
EOR vs PEO: Pros, Cons, and Which Model Fits Your Business
Still weighing your options? Let’s break down the pros and cons of choosing one over the other.
EORs might involve higher costs and offer limited control over HR functions, as well as less direct employee engagement. But PEOs can introduce complexities in shared control and HR policy conflicts.
However, overall both models provide robust solutions but cater to distinctly different business needs.
PEO vs Playroll EOR
Playroll is an employer of record service that assumes full compliance with local labor laws and regulations around global hiring.
Importantly, with Playroll EOR, the client company maintains control over the employees' daily tasks and duties, unlike in a typical PEO arrangement where some operational controls are shared.
The burgeoning interest in PEO and EOR services, particularly in the US, parallels the increasing foreign direct investment, highlighting the EOR's vital role in facilitating international business expansion without the administrative burdens typically associated with entering new markets.
As businesses look towards sustainable growth, EORs allow companies to maintain a competitive edge in international markets, ensuring they remain agile and compliant amid shifting economic and political climates.
Ultimately, the choice between EOR and PEO hinges on a business’s specific needs, but the rise of the EOR model points to a shift towards global employment solutions that prioritize efficiency, compliance, and strategic international presence.
Start your global hiring journey today from $399 per employee.
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