What does PEO stand for, and how is it different to an EOR?

In a perfect world, you could hire international remote workers without worrying about compliance and payroll across borders.

In reality, the complexities of international law make it difficult for businesses to hire workers abroad.

To hire globally, businesses need to work with an employment partner, such as an employer of record (EOR) or professional employer organization (PEO).

In this article, we’ll explore what PEO stands for, how it differs from an EOR, and how it can positively impact your business.

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Quick facts about EORs and PEOs

Here is the main difference between an EOR and a PEO and what they have in common:

• An EOR can employ workers in other countries on your behalf, and you don’t have to open your own entity in that country. It acts as the legal employer of your workers on paper. Learn more about what an EOR does.

• By contrast, you have to establish a legal entity in the country or region to work with a PEO.

• Both EORs and PEOs manage HR tasks such as payroll, benefits, and tax deductions and reporting.

With a PEO, there is a co-employment arrangement with your company, your employee, and your PEO. So using a PEO makes you solely responsible for compliance with local labor laws.

Now, if you already own a legal entity in the country, working with a PEO may be the more affordable option.

However, if you don’t already own an entity, working with an EOR is significantly more affordable and faster than opening a new entity.

For companies looking to scale globally, the most notable difference is that a PEO requires you to own a local entity and enter into a co-employment arrangement, while an EOR allows you to hire in other countries without an entity and without a co-employment status.

What does PEO stand for in HR?

In human resources (HR), PEO stands for “professional employer organization.”

A PEO is an external company that provides HR services to businesses. In 2022, there were 487 PEOs in the United States.

Essentially, a PEO acts as a co-employer with these businesses — taking on certain employer responsibilities, such as the following:

• Payroll and tax

• Benefits and administration

• Compliance with employment law

Partnering with a PEO lets businesses focus on their other operations while knowing that administrative burdens are being handled by experienced professionals.

How much does a PEO cost?

The cost of partnering with a PEO can vary depending on factors such as the number of employees in the company and the specific HR services required.

Typically, PEOs use one of the following two methods for setting their fee:

1. Some PEOs take a percentage of a company’s total payroll.

2. Others charge a flat fee for each employee per month.

Using a PEO can be expensive. And, depending on your needs, they might not be the best fit for your HR needs. That’s why it’s important to know what PEOs offer and what your other options are before making a decision.

Why are PEOs used?

Companies choose to partner with PEOs when they want to streamline their HR operations, save time on administrative tasks, and provide better benefits to their employees.

Companies that use PEOs grow 7 to 9% quicker, experience 10 to 14% less turnover, and are 50% less likely to go out of business.

Here’s what working with a PEO can offer:

• Cost savings: PEOs can help businesses save money by helping reduce employee turnover, removing the expense of having to hire an internal HR team, and avoiding costly legal mistakes.

• HR services: PEOs can provide a range of HR services, including payroll processing, benefits administration, and compliance support.

• Risk management: PEOs can guide businesses in managing workplace risks, such as workers’ compensation and employee safety.

• Employee benefits: PEOs can provide access to better insurance and benefits plans, which can help businesses attract and retain top talent.

Linking up with a PEO can be a wise decision for businesses that are looking to scale their workforce. However, you’re limited with a PEO because you can’t hire in areas where you don’t already have a legal entity.

What types of businesses can benefit from PEO services?

Small and medium-sized businesses might choose to partner with a PEO service.

Often, these businesses have limited resources and simply can’t afford to hire a dedicated HR department. Partnering with a PEO can give them access to a range of HR services without having to hire additional staff.

It’s vital, however, that the PEO you’re working with understands your vision and goals for the future so they can work alongside you to complete them.

That’s why it’s so important to choose the right PEO service for your business from the very beginning.

Consider the following before choosing a PEO service:

• Your own workplace needs

• The PEO’s cost and reputation 

• The PEO’s customer service standards

• Whether the PEO has relevant technology

Employer of Record & PEO —

13 min

When should you use an employer of record, and which one should you choose?

If your company wants to hire workers in another country, you probably need an employer of record. But how do you choose the right one? And what does an employer of record actually do? This guide provides all the answers you need.

What is the difference between an EOR and a PEO?

Though some use the terms interchangeably, PEOs and EORs have a few important distinctions.

The main features of an EOR are as follows:

• Legal employer: An EOR acts as the legal employer for the workers they hire on behalf of their client.

• Payroll management: An EOR takes care of payroll management, including calculating and processing payments, withholding taxes, and making other deductions.

• Compliance: An EOR ensures compliance with all local labor laws and regulations, including tax laws, employment contracts, and benefits.

The key difference between an EOR and PEO is that PEOs mostly handle HR functions for businesses that already own entities, while EORs employ workers on behalf of their clients’ companies without requiring them to open an entity.

What works better for international employees: a PEO or an EOR?

As it turns out, if you don’t own an entity in the country where you want to employ someone, you need an EOR, not a PEO.

If you’re working with a global employment partner and they require you to open your own entity before you can hire workers, that partner does not actually provide EOR services — only PEO services.

These companies are sometimes called "global PEOs" or providers of "global PEO services."

Global PEOs are great if you’re already planning on opening an entity, but if not, working with an EOR is faster and likely more affordable. This is especially true if you’re only hiring a few employees in the country in question.

With an EOR, you can continue to work with your employees the same way you work with all your other employees. In this way, an EOR allows you to employ full-time workers in countries where you do not own a legal entity.

A PEO may be able to help you hire employees in other countries, but only if you have an entity. Generally, PEOs provide most of the same HR services as EORs, like payroll and benefits administration, but with the additional requirement of co-employment with your local entity. In addition, PEO-only companies may not have the same legal expertise that EOR providers have.

It’s important to remember that an EOR can also provide all the HR services your business needs, such as payroll and benefits management, but your EOR always acts as the local employer of your workers on paper.

When you expand your team into new countries, having an all-in-one EOR partner to handle these key processes in addition to your compliance needs can make life much easier.

What are the advantages of using an EOR?

An EOR is typically a better option than a PEO when you want to hire a full-time employee in a country where you don’t have a legal entity or plan to establish one.

Your EOR will handle the legal employment of your workers in other countries, so on paper, the EOR is the employer.

However, In reality, the EOR simply facilitates the paperwork for the sake of compliance.

Some benefits of using an EOR include the following:

• Provides cost efficiency

• Offers flexibility for companies looking to hire across the globe

• Ensures compliance with local labor laws and regulations

Factors to consider when deciding between a PEO and EOR

Say you want to hire a talented worker in another country, like Germany or France, but you don’t have any other employees in that region.

Perhaps you have contractors there, but you are concerned about the quality of the experience your employees receive or your company’s compliance with local laws.

Where should you turn next?

Remote is intimately familiar with the different challenges companies face when hiring international workers. Our own team includes hundreds of people in dozens of countries on six continents.

If you are not sure what kind of help you need to work with global talent, we recommend starting by considering a few basic questions.

1. Do you own a legal entity in the country where the employee lives?

To employ full-time workers in a country where you do not own a legal entity, you must use an EOR. That is your only option if you do not wish to open your own legal entity.

However, it is best to practice caution when doing so. Some EORs work through third parties to employ your workers in other countries instead of doing so directly. These EORs don’t own their own legal entities, instead choosing to add extra fees on top of the costs charged by their own providers.

Not only does this provide a confusing and unpleasant experience for your employees, but it can also get expensive quickly for your company. With little control over costs, these partner-dependent EORs offer inconsistent billing and service.

Remote owns our own legal entities in all countries where we offer services. This guarantees the best experience for your team and the best flat-rate pricing for your company.

In some situations, you can pay workers as contractors — in which case you can use a PEO, but you must carefully consider the nature of the relationship so you don’t accidentally misclassify employees as contractors.

If you don’t have an entity, you can always open one. However, there are multiple factors you should consider about the process first. These include the following:

1. It can cost thousands of dollars just to get set up legally.

2. It can be time-consuming, and if you have a physical presence, you’ll need someone to manage your operations locally. 

3. Unless you anticipate a major expansion in a specific country, it can be a waste of resources in the long run.

Businesses that do own legal entities in their target countries don’t always have the resources to meet all their employees’ needs.

That’s where a PEO comes in.

A PEO handles a variety of HR functions to ensure employees can receive their paychecks and access benefits, like health care and paid time off, and they can provide most of the same services as an EOR within a co-employment arrangement with your business.

2. How many employees do you want to hire?

Most PEOs and many EORs enforce minimum employee counts.

Starting local legal entities gets expensive quickly, and companies that provide these services may tell prospective client businesses that they require a minimum employee count to begin a partnership.

For startups and small businesses, this barrier usually makes international hiring unreasonably expensive, forcing them to hire only local talent.

Companies looking to open an entity in a new country likely want to hire many employees to work there. In these situations, a local PEO can help manage HR functions through a co-employment arrangement.

3. Are you hiring full-time employees or contractors?

Technically, you don’t need either an EOR or a PEO to work with international contractors.

All you need is a compliant contractor management and payment solution.

Fortunately, Remote makes it easy to pay and manage contractors all over the world. As the most knowledgeable international contractor management solution in the industry, we help companies of all sizes pay contractors all over the world.

Get your Checklist for Hiring International Employees

Work through this checklist to help you stay compliant when you're employing across borders.

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Is it time to partner with a PEO or an EOR?

If you’re a small or medium-sized business owner that needs HR help, teaming up with a PEO services provider is worth considering. If your plans are refined to one country, a PEO may be a solid option.

Remote does not currently offer PEO services. However, Sequoia One provides the ideal solution that combines perfectly with Remote's HR platform.

If you are considering hiring internationally, an EOR will give you more flexibility.

Luckily, Remote offers the best of both worlds. We provide dedicated global payroll and global HRIS services, allowing you to easily manage your people across the globe.

We also offer EOR services, enabling you to focus on expansion without worrying about administration and compliance issues.

Whatever your global HR needs, Remote has you covered, helping you to stay ahead of the competition and unlock new opportunities for growth.

If you’re unsure which approach is the right one for your business and you want to learn more — including how Remote can help — come and speak to one of our friendly experts today.