EOR vs. PEO: Identify The Most Suitable HR Outsourcing Service for Your Company

Many SMEs realize the important role of HR in the background for their global expansion plan, standing between two HR outsourcing options; EOR and PEO. But which one is best suited to SMEs and startups?

Taking a big step by  expanding to a new foreign market is what many companies aim for, from giant companies to SMEs. While big companies have the resources and power to execute a plan, SMEs need to plan their actions carefully. Especially when it comes to HR affairs – a vital part of any business that is often neglected by SMEs. In this case, the cost-effective and time saving solution undoubtedly is outsourcing. There are two possible options in this case; EOR and PEO. Both EOR and PEO can support SMEs and startups in taking care of their HR and legalities of hiring process. 

EOR and PEO do, however, have certain distinctive features that employers should consider before deciding which service they should use for HR management. We have talked about Employers of Record and how it can support expedite your business expansion overseas in our last post. In this section, we will elaborate more on Professional Employer Organizations so that you can better understand their differences.

What is Employer Of Record

Employer of Record (EOR) service is a third-party entity that can provide you with all the necessary support to hire overseas talents while keeping it compliant including taking care of the local regulation, legal responsibilities, and benefits.

Simply put, foreign employers hire local employees through the EOR service provider, like Slasify, and the EOR service provider will be responsible for all labor regulations including social insurance, pensions, labor contracts, tax filings, labor records.

For hired talents, they can obtain paycheck and employment records, which can greatly benefit them by increasing their financial credibility. Especially when they need to apply for credit from financial institutions such as mortgage and credit cards. 

At the same time, any dispute between the employee and the employer can be resolved locally, if there is any. EOR service providers will be responsible for the risk, which also provides more secure protection for remote workers and employees.

What is Professional Employer Organization

Professional Employer Organization, known as PEO, exists as a co-employment and handles their client-company HR tasks and employee liabilities namely payroll, recommendation for employment benefits, handling taxes, and lawsuit consultant. Therefore, small and medium businesses usually reach out to have a partnership with PEO to minimize their hiring hassle.

At a glance, you may find that both EOR and PEO third-party organizations provide similar HR outsourcing services to help you deal with international hiring and employment compliance. From professional employee management, hiring, payrolls, cut down labor expenses, compliance labor laws, etc., you name it. 

These matters are all covered by EOR and PEO, which leads to confusion for the companies to select which service to employ as a solution and pose a challenge to distinguish between EOR and PEO. It is important to understand the differences between these two types of HR outsourcing. Without understanding the differences between the two you are unlikely to choose the suitable partner for your plan. 

We have laid out some information to compare between the two to help you make a better decision on which services are more suitable with your use cases.

Comparison between EOR and PEO

Legal Presence in Foreign Country

PEO requires your company to have a local legal entity established in the target country or region. It is your responsibility to comply and carry out local labor laws. Since your business and PEO are a co-employment relationship, risks and liabilities are shared for both sides. 

EOR, on the other hand, is the local legal representative for your company in foreign country. As their client, EOR covers all of the risks and liabilities related to the employment and comes out to deal with any labor laws, report taxes under their tax ID, as well as employee contracts. In other words, EOR helps businesses to hire talents in any country that the EOR has established as a legal entity, and manage the employee internationally. 

Scope of management

On legal paper, your employees are hired by EOR, and they are covered by EOR’s insurance. But in reality, your company still has full control of your employees’ job function. EOR hires talents and handles labor laws, compensation, payroll.

In contrast, PEO supports hiring talents, and you are the legal employer. PEO is not deeply involved in the employee’s job function management. PEO manages payroll, legal matters and tasks from both parties’  contractual agreement. Their expertise gives company value recommendations to avoid troubles, but the final call is in your hand.

EOR in general has less functions than PEO, however the HR responsibility that EOR has to perform is often far more complex than PEO. 

Your Company Size

You might have heard a saying that said“Size does not matter”. Unfortunately in this case, your company size is matter to PEO as they normally put minimum employee count as of the requirement to use their service. Generally, PEO  is not likely to provide services for businesses to manage less than 10 employees. This should not be a problem for large companies, but it is a headache for small growing businesses. 

In contrast, EORs do not require a minimum count. They are more flexible as they charge the service fee per head of the employee’s hired. 

“Which one is the most suitable HR outsourcing service for your company?”

After the comparison between the two HR service providers, this brings us back to the first question: which one is the most suitable service for your company. To answer this question, you must first analyze your company capabilities and resources to decide which partnership is better suited to your company’s development plan. Here are some suggestions for you: 

As you know from the above discussion about legal entities. If your company has already set up a local entity in the new country, and you lack the resources to provide for your employees’ needs, PEO is a good option for outsourcing certain HR functions. Otherwise, it is a logical choice to have partnership with EOR and have them take care of all of the labor compliance for you as it will be more practical and scalable to deploy a small number of overseas teams. 

The type of employees you want to hire is a factor that affects your decision making. For instance, the company that needs full-time employees on board, either PEO or EOR are suitable. While those who seek temporary employees or contractors. EOR should be the best option because of the frequent change in personnel of the company, EOR proficiency in labor laws of the operation country will reduce the risk you will have to face.

To summarize, both EOR and PEO have their own advantages and limitations. So you can start to list out what you are seeking from HR outsourcing firms to aid in your growing global strategy. Still have some questions about which service to adopt? Get in touch with our consultant to provide you with the most suitable HR solution for your growing team.

Slasify is designed for remote worker. We provide payroll calculation, social security payment and tax filing in more than 150 countries around the world, allowing business owners/talents to seamlessly connect with the world. We have practical experience in serving the world’s top 100 companies. If you have relevant needs, please feel free to contact us.

In addition, if you are a “remote worker” or are on the way to becoming a “remote worker”, and if you want to know more about it, you are welcome to visit Slasify’s website. If you have any questions, you are welcome to write an email to us!