What is an Employer of Record vs. Professional Employer Organization?
What is an Employer of Record vs. Professional Employer Organization?
Employer of record (EOR) and professional employer organization (PEO) partners help companies manage workers. The main difference between EOR vs. PEO is that an EOR is the legal employer of your organization’s workforce, while a PEO acts as a co-employer. Understanding this and the differences between an EOR and PEO can help you decide the best solution for your business.
Remote work has elevated agile companies’ need for solutions to build and manage the compliance of their distributed workforce. However, hiring and paying across state lines requires compliance with local employment laws which is a time-consuming and tedious process that can strain company resources and distract from your core business.
Let’s look at EORs and PEOs and their key differences so that you can choose the most appropriate solution for your company.
What is an EOR?
An Employer of Record (EOR) is a third-party company that becomes the full legal employer of your workforce and assumes all employer-related responsibilities and tasks on behalf of your company. An EOR takes on your company’s human resources responsibilities and onboards, pays, and manages your supported employees while you maintain and control the day-to-day operations.
An EOR handles HR-related tasks, such as:
- Employee agreements
- Onboarding
- Payroll
- Taxes
- Payroll compliance
- Benefits administration
- Unemployment claim reporting
You maintain a similar relationship with your workforce as you would without an EOR. You would assign responsibilities to workers and oversee their deliverables.
If your goal is to quickly and compliantly hire top talent no matter where they are located, an EOR allows you to hire in any state with no business registration required easily and quickly.
What is a PEO?
A PEO is a third-party company that contracts with businesses to provide HR services. PEOs manage payroll, benefits, and other HR responsibilities for a client company’s employees. Specifically, in the U.S. market, they are also known as co-employers.
A PEO is not the employer of your workforce. Working with a PEO relieves you of some HR-related responsibilities. However, your company is still held accountable for legal and day-to-day operations, including registering your business where you hire talent.
Five Differences Between EORs and PEOs
While an EOR and a PEO both handle your company’s HR functions, the two are not the same. Here are five significant differences that set EORs and PEOs apart.
1. Legal Structure
An EOR is a third-party partner that employs your workforce in one location or distributed locations where you do not own a legal entity. PEO is a co-employer, a third-party company that outsources your organization’s HR duties.
As a trusted EOR partner, you can give up some control over HR-related tasks and have access to high-quality benefit plans and local expertise. With a PEO, your company is the on-site employer, and you provide direction for HR-related decisions that a PEO company would facilitate.
2. Risk Mitigation
A key benefit of an EOR is that it acts as the actual employer of your workforce and assumes all employment risks and liabilities related to the services it offers. Since a PEO is a co-employer, your organization will have exposure to employment liabilities like workplace safety and more. A PEO may be able to help you manage those risks, but a PEO does not maintain full responsibility for workplace risks.
3. Scale
Because a PEO acts as a co-employer that takes on HR-related tasks, it may offer value to companies with mostly full-time employees. PEOs also may require a minimum number of employees to provide access to certain benefit packages.
An EOR offers more flexibility for companies that rely on a mix of full-time and temporary employees or need access to talent in other locations. EORs are also less likely to have employee minimums.
4. Scope of Work
An EoR partner has comprehensive knowledge of local hiring practices and laws to take the compliance guesswork out of a multistate expansion.
A PEO partner offers HR services in locations where your business already owns an entity. Because a PEO does not employ your workforce, your company is still responsible for location-specific labor law compliance.
5. Cost Savings
An EOR can cover insurance and benefits for your distributed workforce, saving your organization additional money and time. An EOR typically costs less than a PEO in the long term. With a PEO, you would still be responsible for insurance and benefits.
Contact Strategic Contracting Services
As your Employer of Record, we undertake all employment responsibilities and handle the financial nuts and bolts of workforce management.
LinkedIn: What is an Employer of Record vs. Professional Employer Organization?