What are the differences between PEO and EOR?

Ishita Ramani , Last updated: 03 December 2022
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Introduction

The PEO and EOR are different terms with different meanings. A PEO or professional employer organization, is a full-service co-employment human resource outsourcing structure. The PEO handles a variety of employee administrative duties on behalf of a company, including payroll and benefits management. The employer of record can help your business grow internationally. You can hire global employees easily with their help. This article will help you know more about the difference between PEO and EOR.

What is professional employer organization (PEO)?

A professional Employer Organization (PEO) is a company that enters into a joint-employment relationship with another company by leasing employees to the company, allowing the PEO to share and manage many employee-related responsibilities and liabilities. Employers can outsource human resource functions such as employee benefits, compensation and payroll administration, workers’ compensation, and employment taxes as a result of this.

PEOs (Professional Employer Organizations) typically act as professional employers for the employees of their clients. Employee liability is transferred to the PEO when the client company reports its wages using the PEO’s federal employer identification number (FEIN). Employers benefit from economies of scale by offering more benefit options, often at lower rates.

What are the differences between PEO and EOR

What is Employer of Record (EOR)?

A company that acts as the employee’s employer for tax reasons even while they are working for a separate business is known as an employer of record (EOR). Traditional employment responsibilities and liabilities are undertaken by the EOR.

What is the difference between PEO and EOR?

	PEO	EOR
1.	Serves as an official employer	Serves as a co-employer
2.	Undertakes all responsibilities and possible consequences.	Shares liabilities with the employer.
3.	Manages a limited number of HR functions	Can manage all HR activities
4.	The most sorted way for hiring contractors and temporary employees.	Most effective for managing the entire team and onboarding.
5.	Employing global talent does not require a legal entity.	Legal entity required to hire global talent.
6.	Provides services for at least 5–10 employees.	There is no limit in providing services to the employees.
7.	Only deals with clients who are authorized to do business in every state and nation where it has workers.	There are no restrictions, it permits businesses to grow their workforce into other nations and states without selling a business entity.
8.	It can be necessary to file taxes using the client’s tax ID number.	Reports taxes using its tax identification number.
9.	Payment is necessary before payroll (No payroll funding).	Manages payments according to the payment conditions (Payroll funding).
10.	There is no insurance provided in PEOs.	EORs offer workers’ compensation (WC) and general liability (GL) insurance protection.
11.	The employment contract must be signed by you and your employees.	Signatures on the employment contract directly with your staff members.
12.	The PEO can help with contract creation or drafting.	The contract is between the employee and EOR.

Conclusion

PEOs generally offer the majority of the same human resources services as EORs, such as payroll and benefits administration. Additionally, PEO businesses might not have the same level of legal expertise as EOR providers. In conclusion, EOR and PEO each have their own benefits and drawbacks. In order to help your expanding global strategy, you should start to list what you want from HR outsourcing companies.