Insights into global expansion & employee retention

Published: June 3, 2022

Employer of Record vs PEO: What’s the Difference?

If your business is operating internationally, innovative technologies can streamline countless HR tasks like payroll processing (in numerous currencies), tax reporting and financial planning for future expansion.
employer of record

New solutions constantly enter the market, so employers face the difficult task of choosing the right tool for their business. Two of the options are an employer of record services (EOR) or professional employer organizations (PEOs).

In this article, we’ll break down everything you need to know about both services, helping you choose the right tool in the PEO vs. EOR debate. 

What is an Employer of Record (EOR)?

An employer of record (EOR) is a third-party entity that—among other functions—allows your business to employ people living abroad without setting up a legal entity in your employees’ home countries.

What do EOR services look like in real-time?

  • Enhanced and automated HR functions – EORs like Playroll commonly offer payroll solutions, automating wage calculations, benefits deductions, tax reporting and more. 
  • Compliance monitoring – For companies hiring employees abroad, EORs perform the heavy lifting of regulatory compliance. Software platforms and global HR experts ensure legal compliance worldwide, shouldering the burden of liability. 
  • Third-party employment – When you use an EOR, your staff members are—legally speaking—employees of the EOR instead of your company. The EOR sends their paychecks, maintains employment contracts and administers benefits. 
  • Financial planning for staffing investments – Planning to hire more people to take on a new market? Ready to scale after an exponentially profitable year? An EOR can help your business plan and calculate the financial impacts of hiring new staff. 

What is a Professional Employer Organization (PEO)?

Professional employer organizations (PEOs) team up with your company to provide HR-related services (like a payroll management system, for instance), sharing the burden of operational functions, liabilities and compliance monitoring.

However, there’s one crucial difference between an employer of record vs. PEO services—PEOs are co-employer for your organization. How does this compare to EOR?

  • Establishing entities abroad – PEOs cannot serve as primary employers for staff working abroad. Businesses hiring internationally must establish legal entities in their employees’ home countries if they choose to use a PEO. 
  • HR tasks – PEOs and EORs generally offer the same HR services—automated payroll, tax functions and new employee onboarding, to name a few. They both offer businesses access to HR management platforms and expert advice. 

Benefits of PEO vs EOR

Third-party employment might not sound sensical at first—why would you want your employees to work for an EOR or PEO instead of working for your company directly?

Employing staff with the help of an EOR or PEO can positively impact your business. Let’s explore a few advantages of both:

  • Increased HR efficiency – Both EORs and PEOs offer streamlined HR services that can cut overhead costs without sacrificing functionality or quality. 
  • Access to valuable tools – PEOs and EORs have the capital to develop and maintain large-scale software solutions. Businesses that work with these entities reduce their liabilities and HR workload and reap the benefits of automation. 

However, EORs can provide a significant advantage for companies hiring globally—instead of establishing legal entities abroad, your company only has to operate one arm of the business. 

Choosing the Right Resource for Your Company

PEO vs. EOR—which should your company choose when levelling up its HR functions? 

PEOs are perfect for companies that:

  • Only hire domestically
  • Want additional support for HR functions
  • Seek increased automation potential
  • Desire co-employment over complete third-party employment

But for companies hiring abroad, choosing an EOR over a PEO is likely the best choice. 

Think about how many cogs turn in the machine of your business—you run multiple departments, perform numerous regulatory compliance functions and do your best to make a profit. If you have to create a legal entity in another country, you essentially double your workload, not to mention your overhead.

Remember to choose the resource that’s right for the future of your company. If you plan to hire internationally at some point, you should strongly consider taking the EOR route. If you’re comfortable sticking to a domestic operation, a PEO might suffice. 

Tackle Global Hiring with Playroll

Employerof record vs. PEO considerations can be daunting, especially for businesses with global aspirations. While businesses of all ages, phases and scales stand to benefit from additional HR support, choosing the right option requires careful planning.

For international employers—or domestic brands with plans to expand abroad—an EOR like Playroll can streamline your HR and global compliance functions, thus optimizing profits, reducing overhead and ensuring above-board operations at all times. 

Businesses that choose Playroll have access to the two best tools in our arsenal: our expert HR and international compliance team and our state-of-the-art, all-in-one software. Our platform is powerful, offering financial planning for future staffing investments, streamlined employee onboarding, payroll and tax functions and so much more. 

When you’re ready to play on the world stage, choose Playroll for all of your international HR needs.

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