Does your business need an EOR or a PEO?

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).

At a glance, here are the differences between an EOR and a PEO:

• An employer of record can employ workers in other countries on your behalf without opening your own entity in that country. Learn more about what an employer of record (EOR) does.

• PEOs require you to own your own local legal entity in the country or region.

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

• An EOR is the legal employer of your workers on paper. With a PEO, there is a co-employment arrangement with your company, your employee, and your PEO.

• With a professional employer organization, you are solely responsible for compliance with local labor laws.

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

• If you do not own an entity, working with an EOR is significantly more affordable and faster than opening a new entity.

The biggest difference is that PEOs require 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. There are a few other differences as well, but understanding those differences can be tricky. This guide can help you learn what distinguishes an EOR from a PEO, why it matters, and how to figure out what kind of partner your business needs to hire remote talent around the world.

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. PEOs mostly handle HR functions for businesses that already own entities, while EORs employ workers on behalf of their client companies without requiring them to open an entity.

If you do not own an entity in the country where you want to employ someone, you need an employer of record, not a PEO. If you are 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." That is fine if you already plan on opening an entity, but if not, working with an EOR is faster and likely more affordable. This is especially true if you are only hiring a few employees in the country in question.

Your employer of record handles the legal employment of your workers in other countries. On paper, the EOR is the employer. In reality, the EOR simply facilitates the paperwork for the sake of compliance. You continue to work with your employees under the EOR 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.

Professional employer organizations (PEOs) may be able to help you hire employees in other countries, but only if you open an entity there or already have one. PEOs typically provide most of the same human resources 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 is 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.

Which type of partner should you choose?

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, start by considering a few basic questions.

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 employer of record, or EOR. That is your only option if you do not wish to open your own legal entity. In some situations, you can pay workers as contractors, in which case you must carefully consider the nature of the relationship so you don't accidentally misclassify employees as contractors. If you do not have an entity, you can always open one, although doing so usually costs thousands of dollars and can take several months.

Opening legal entities can be a time-consuming and expensive process, even for large enterprises that already have presences in several countries. Unless you anticipate a major expansion into a specific country, in which case establishing a local entity might make sense for your goals, an EOR is the most logical step forward.

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

Be cautious: Some EORs work through third parties to employ your workers in other countries instead of doing so directly. These EORs do not 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 to match their inconsistent 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. Learn more about owned-entity vs. partner-dependent EORs on our blog.

In short: If you don’t own a legal entity where your prospective employee works, you need the services of an EOR. If you do own a legal entity but want help managing HR for your employees in the country, you need the services of a PEO.

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.

Remote, of course, enforces no minimums for our services. If you want to hire a single employee in a single country, we’re always happy to help. See Remote's Fair Price Guarantee for more information.

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.

Are you hiring full-time workers or contractors?

Technically, you don't need either an EOR or a PEO to work with international contractors. You simply need a compliant contractor management and payment solution. Fortunately, Remote makes it easy to pay and manage contractors all over the world. As the most knowledgable 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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What kind of services does Remote offer?

Remote is an employer of record, meaning we help companies employ workers in other countries where those businesses do not own local legal entities. We also offer a global contractor payment and management product, integrated seamlessly into our platform. Remote only offers employer of record services in countries where we own legal entities to provide you and your team with the best experience at the best price. Because contractor payments do not require entities, we can help you pay your contractors all over the world.

To see where Remote offers employer of record services today, visit our Country Explorer. Here you can see our covered countries, and learn more about employment laws and taxes all around the world.

Remote does not currently offer PEO services (that is, payroll and benefits services for companies that already own an entity in a country). But stay tuned! We are working hard to make our best-in-class global payroll solutions available for companies with established entities all over the world.

In the meantime, we would love to help you grow your business by helping you employ workers in other countries. If you're ready to get started, sign up now and begin onboarding international employees and contractors in minutes! Have questions? Reach out to our team, and one of our experts will get back to you.