What is the difference between an EOR and a PEO?

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EOR & PEO

A company that wants to expand into another country must start by hiring the right employees in that nation. However, you should know the differences between EOR & PEO, to have a more precise idea of what you need. Therefore, you must know the characteristics of each one primarily, although these services may be similar.

In this article, you will learn the specific concepts of each of these types of organizations and their differences. Also, there is a description of the features you should consider when deciding which of these organizations is best for you. Below, you can see every one of these aspects, and more information:

1. What is an Employer of Record (EOR)?

2. Definition of PEO (Professional Employer Organization)

3. What are the key differences between EOR & PEO?

4. How can you choose between EOR & PEO?

5. How can we help you fully understand all about EOR & PEO services?

1. What is an Employer of Record (EOR)?

An Employer of Record is a company that you can subcontract to carry out the legal hiring of workers for your business. Hence, your employees sign the employment contract directly with the supplier instead of with your business. Likewise, the EOR is the one who performs all the administrative work concerning its workers without exercising control over them.

Thus, you must manage your employees concerning salaries, the positions they occupy, and when. Therefore, by hiring an Employer of Record you can delegate activities such as payroll, benefits, compliance, etc. In the same way, since the employer is the one who legally hires the employees, he assumes all responsibility for it.

Therefore, at the time of any situation where the employee must receive compensation, the Employer of Record resolves it. Thus, these services are useful when you need to expand your business to other markets. Otherwise, you would have to go through all the paperwork to establish a legal entity in that market.

However, with an Employer of Record, you only need them to have the legal presence to hire the employees for you. In this way, you can focus on other aspects.

2. Definition of PEO (Professional Employer Organization)

In the case of a PEO or Professional Employer Organization, you work as a co-employer in conjunction with your company. Also, these organizations mostly offer services that are commonly handled by HR departments. Therefore, they can handle things like your payroll, compensation, and compliance, as well as benefits for your workers.

Also, these organizations may offer contracting services, contract termination assistance, or risk management. Similarly, PEO services that handle large numbers of clients offer good insurance plans. For example, they can help you get health insurance, compensation for workers, and other business insurance.

Also, thanks to these services, you can get lower insurance premiums than when you apply independently. Likewise, a PEO employment can have a substantial tax effect since they use their employer ID. Therefore, when you choose this organization with a lower state tax rate, you can lower your tax burden.

On the other hand, with a Professional Employer Organization, even though you work as your co-employer, it will not interfere with your work. This is because you retain control of your employees in terms of activities, payments, and schedules, among others. To have greater security regarding this service, verify that said organization is certified.

Therefore, these employment professionals can help you in the activities that have to do with HR management.

3. What are the key differences between EOR & PEO?

One of the most outstanding differences between an EOR & PEO is who acts as the legal employer of their workers. In this way, with the second, you will obtain a co-employment relationship, which means that your business is the legal contractor. Hence, you are legally responsible for your employees and the organization only supports HR functions.

On the other hand, an Employer of Record is the one who hires the employees and is their legal representative. In this case, even if they work for you, the employees sign the contract with the organization that provides the services. However, you are still in charge of defining the salaries of your employees and performance evaluation.

However, the EOR, as a legal employer, can make the hiring you need in any place where it is established. Moreover, most employers of record can offer companies Human Resources services. Also, based on this main aspect, the following differences arise.

3.1 Employment management

A Professional Employer Organization performs the Human Resources tasks of your business with certain limitations. For example, they can handle employee onboarding, assessments, as well as other related services. However, while a PEO can help you improve the hiring process, your business is responsible for managing employment.

On the other hand, the Employer of Record can help you make the process of hiring and managing employment easier. Also, as you can see, they are legal employers and supervise all the work of their employees. They do this for both small businesses and those looking to expand globally.

3.2 Employee benefits

Another difference between an EOR & PEO is the benefits that your employees can obtain through each one. For example, it may happen that your company must be the one to provide some type of insurance for your employees with the latter. However, a Professional Employer Organization may provide health insurance for its workers.

However, a PEO may not cover employee compensation, so keep that in mind.

On the other hand, an Employer of Record can provide better benefits to their employees, as well as better risk management. Therefore, your company will not have to worry about dealing with the tedious paperwork and the purchase of insurance. This is because the EOR provides general liability, employee compensation, and other types of insurance.

In addition, they assume all the responsibilities related to each of these aspects.

3.3 Business registration

Global PEO services requires that your company have a legal entity in the place where you want to hire. This is because their relationship with your company is one of co-employment, unlike the Employer of Record. However, this is not a big deal if the hires are where your business is located.

However, if you want to contract internationally, you must go through the entire process of establishing a legal entity. That is another difference between an EOR & PEO since the former already has a legal entity, so you do not need it. In this way, you can have more facilities to enter a foreign market and have the best staff.

3.4 Legal compliance

With PEO services in the UAE, you have to take care of both business registration for hiring and legal compliance. In addition, this process can be somewhat difficult due to the knowledge that you need to have about the specific laws. Likewise, if you make a mistake through ignorance, you must face the legal consequences of it.

With an Employer of Record, you should not worry about compliance, as they manage everything you have to comply with. Therefore, you can rest easy with the hiring since you will not have to constantly think if you missed something. Also, being the legal employer, the supplier company assumes responsibility if any infraction occurs.

3.5 Employee quota

Some Professional Employer Organizations may have minimum employee quotas for you to hire their services. Thus, in most cases, this number can be around 5 or 10 employees. However, with an EOR you do not need to have a minimum number of employees to have their services. 

Since these organizations work internationally, they can easily serve the needs of small businesses. They can also provide their services to companies that have larger staffing needs. In addition, this can be accompanied by more flexible offers in terms of comprehensive solutions or only HR.

4. How can you choose between EOR & PEO?

Knowing how to choose between EOR & PEO will depend on the specific needs of your business in terms of various elements. Therefore, knowing the differences between both organizations can help you glimpse what you need. However, you can see below the points that determine which is better for your requirements.

4.1 Whether or not you have a legal entity in the country

With an Employer of Record, you do not need to have a legal entity in the country where you want to hire employees, as it already is. Therefore, if you do not want to go through the entire legal establishment process, your only option would be this type of organization. You can also choose to open your entity but this would be time-consuming and expensive.

This process would make sense for your business if you are considering large-scale expansion in a particular nation.

On the other hand, if you have a legal entity already established in said country, you can opt for global PEO services. Because these organizations can handle all matters related to HR functions. Therefore, this is a point that you can easily rely on to determine what type of service you require.

Also, you must verify that, indeed, the company you want to hire has a proven legal entity in place. In this way, you guarantee an adequate experience for your work team, while obtaining better prices. Also, make sure that the Employer of Record has its legal presence and does not depend on partners.

Hence, in this regard, if you do not have a legal presence where the employees you want to hire are, you need an EOR. On the other hand, if you already have a local presence but want assistance managing HR, you need a PEO.

4.2 Number of employees to hire

As we mentioned earlier, a professional employer may require a minimum number of workers. This may be due to the demands that exist for you to employ people elsewhere. Thus, this can represent an obstacle for small and medium-sized companies, in their desire to expand.

However, there may be Professional Employer Organizations that do not impose a minimum number of employees to hire them. Certainly, many companies want to hire many workers when expanding to other nations. In this case, PEO services can help you with Human Resources functions through co-employment.

4.3 What kind of worker you want to hire: full-time employees or independent contractors

You can use EOR & PEO services to hire employees or independent contractors, although it is not necessary in this case. Also, you may need any of these providers to manage contractors and their payments. Therefore, you need the services of any of these organizations that know how to manage these payments.

5. How can we help you understand all about EOR & PEO services?

The services of both types of organizations are very similar, except about their employment relationship. Thus, the Employer of Record is legally the one who hires their employees, while the global PEO services work as a co-employer. On the other hand, you must know your specific needs and thus really know what kind of help you need for your hiring.

With experience in both types of work, we can offer you the benefits of each for your business. Also, with our professionals in payroll management, you can hire us and have the security of good management. We also have a relocation service that will help you move your employees or your business to the UAE.

Would you like more information about the difference between EOR & PEO? On PEO Middle East, we can offer you everything you need to know about this and other related matters, just contact us at [email protected]. In the same way, to make any queries or schedule an appointment with our experts, you can call us at +971 43 316 688.

If you are a professional and want to work in a large company in the UAE, you can send your resume to [email protected]. In addition, you can enter and register on thetalentpoint.com and upload your resume to opt for a job.

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