EOR vs POE: Your Complete Guide For 2024

Imagine being able to hire remote workers from around the world without any headaches about compliance or payroll. Sounds perfect, right? But in the real world, navigating international laws can make hiring abroad pretty tricky.

That’s where an employment partner comes in, like an employer of record (EOR) / professional employer organisation (PEO). In this article, we’ll dive into what a PEO is, how it’s different from an EOR, and the benefits it can bring to your business.

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What's the difference between an EOR and a PEO?

While some people use the terms interchangeably, there are important distinctions between PEOs and EORs.

Main features of an EOR:

1. Legal Employer: An EOR serves as the official employer for the employees they hire for their clients.
2. Payroll management: They handle all aspects of payroll, including payment calculations, tax withholdings, and other necessary deductions.
3. Compliance: EORs ensure adherence to local labor laws / regulations, including those related to taxes, employment contracts, and benefits.

Primary difference: While PEOs manage HR functions for businesses that already have legal entities, EORs hire employees on behalf of their clients without requiring the client to establish a local entity.

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While both EORs and PEOs handle HR functions for your company, they’re not the same. Here are five key differences: 

1. Structure

• PEO: Acts as a co-employer, outsourcing your HR duties while your company remains the on-site employer, making HR-related decisions with their facilitation.
• EOR: Employs your distributed workforce in regions where you don’t have an entity, taking over some HR-related decisions but providing access to high-quality benefits and local expertise.

2. Risk

• PEO: As a co-employer, your organisation still faces employment liabilities like workplace safety. The PEO can help manage these risks but doesn’t assume full responsibility.
• EOR: Acts as the actual employer, assuming all employment risks and liabilities related to its services.

3. Scale

• PEO: Suited for companies with more full-time employees and may require a minimum number of employees to access certain benefit packages.
• EOR: More flexible for companies relying on temporary employees or needing access to talent in various locations. Typically, there are no minimum employee requirements, allowing you to hire just one person in a region.

4. Scope

• PEO: Provides HR services in locations where your business already has an entity, leaving your company responsible for local labor law compliance.
• EOR: Offers comprehensive knowledge of local hiring practices and laws, simplifying compliance for multistate or multinational expansion.

5. Cost

• PEO and EOR: Both charge either a flat monthly fee per employee / a percentage of monthly payroll, with possible one-time setup fees.
• EOR: Generally costs less in the long term, covering insurance and benefits for your distributed workforce, saving your organization money and time. With a PEO, you’re still responsible for insurance and benefits.

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

If you don't own an entity in the country where you want to employ workers, you need an EOR, not a PEO. If a global employment partner requires you to open your own entity before you can hire people, they provide PEO services, not EOR services. These are sometimes called "global PEOs."

Global PEOs are useful if you’re planning to open an entity, but if not, an EOR is faster and often more affordable, especially if you’re hiring only a few employees in a new country. With an EOR, you can work with your employees just like you do with all your other employees, allowing you to hire full-time workers in countries / organisations where you don’t have a legal entity.

A PEO can help you hire workers in other countries, but only if you have an entity. PEOs provide most of the same HR services as EORs, like payroll / benefits administration, but require co-employment with your local entity. PEO-only companies may lack the same legal expertise that EOR providers have.

An EOR also provides all the HR services your business needs, such as payroll / benefits management, but it acts as the local employer of your workers on paper. When expanding your team into new countries, an all-in-one EOR partner can make life much easier by handling compliance and other key processes.

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Advantages of having an EOR

An EOR is a better alternative than a PEO when you want to hire a full-time person in a nation where you don’t have a legal entity / plan to establish one. Your EOR will check the legal employment of your workforce in other countries, so on paper, the EOR is the employer. However, the EOR simply facilitates the paperwork for compliance.

Benefits of using an EOR:

• Provides cost efficiency
• Offers flexibility for hiring across the border
• Ensures compliance with local labor laws / regulations

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6 facts about EORs and PEOs

1. EORs: They can hire workers in other countries on your behalf, so you don’t need to set up your own entity there. On paper, they act as the legal employer for your workers.
2. PEOs: You need to establish a legal entity in the country to work with a PEO.
3. HR tasks: Both EORs and PEOs handle HR tasks like payroll, benefits, and tax deductions/reporting.
4. Co-employment with PEOs: Using a PEO involves a co-employment arrangement between your company, the employee, and the PEO. This means you are responsible for compliance with local labor laws.
5. Cost considerations: If you already have a legal entity in the country, a PEO might be more affordable. However, if you don’t, an EOR is usually much cheaper and faster than setting up a new entity.
6. Scaling globally: The key difference for global expansion is that a PEO requires you to have a local entity / enter into a co-employment arrangement. In contrast, an EOR lets you hire in other countries without needing an entity or a co-employment status.

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FAQs

What can an EOR do for my business?

An EOR can hire workers in other countries on your behalf, so you don’t need to set up your own entity there. They act as the legal employer for your workers on paper.

What about PEOs?

To work with a PEO, you need to establish a legal entity in the country. They help manage HR tasks but require you to have a presence there.

Do both EORs and PEOs handle HR tasks? 

Yes, both EORs and PEOs take care of HR tasks like payroll, benefits, and tax deductions/reporting.

How does co-employment work with PEOs? 

Using a PEO involves a co-employment arrangement between your company, the employee, and the PEO. This means you are responsible for compliance with local labor laws.

Which is more cost-effective, a PEO or an EOR?

If you already have a legal entity in the country, a PEO might be more affordable. However, if you don’t, an EOR is usually much cheaper and faster than setting up a new entity.

What is a cash flow?

Do you have a legal entity in the country / organisation where the employee lives?

If you don’t own a legal entity in the country where you want to hire full-time workers, you need to use an EOR. It’s your only option if you don’t want to open your own entity. However, be cautious because some EORs work through third parties, adding extra fees and causing a confusing experience for your employees. It can also get expensive and result in inconsistent service.

At Remote, we own our legal entities in all the countries where we operate. This ensures a smooth experience for your team and flat-rate pricing for your company. If you’re considering paying workers as contractors, you might use a PEO, but be careful not to misclassify employees as contractors.

Opening your own entity is another option, but consider these factors:

• It can cost thousands of dollars to set up legally.
• It’s time-consuming, and you’ll need someone to manage local operations.
• It might be a waste of resources unless you’re planning major expansion in that country.

How many employees do you want to hire?

Both PEOs and many EORs often have minimum employee requirements. Starting a local legal entity can get expensive, and providers might require a minimum number of employees to start a partnership. This can make international hiring too costly for startups and small businesses, forcing them to stick with local talent. If you’re planning to hire many employees in a new country, a local PEO can manage HR functions through a co-employment arrangement.

Are you hiring full-time employees or contractors? 

For international contractors, you don’t necessarily need an EOR or a PEO. You just need a compliant contractor management and payment solution. Remote simplifies paying and managing contractors worldwide, offering a good solution for companies of all sizes.

What services do PEOs typically provide? 

PEOs offer a range of HR services, including: 

• Employee benefits
• Tax management
• Payroll processing
• Compliance support
• HR administration
• Employee training and onboarding
• Recruiting and hiring
• Employment contracts
• Other HR-related tasks like complaint management or dismissals
• Co-employment, meaning they share employment liabilities with the official employer

What about EORs? What services do they provide? 

EORs typically handle:

• Employee benefit management
• Payroll processing
• Compliance
• Providing compliant employment contracts
• HR administration
• Acting as the legal employer for new employees
• Arranging visas and work permits
• Interfacing between employees and government authorities
• Offering legal advice on notice periods, termination rules, severance pay, and more

How are PEO and EOR services similar? 

PEOs and EORs share many similarities, including:

• Both provide HR services to other businesses.
• Both ensure compliance with regulatory norms regarding payroll, employment, and taxes.
• Both offer services like payroll, HR management, benefits management, onboarding, and payroll tax administration.
• The main reason for using either is to free up resources to focus on core business and avoid compliance issues.
• Under both arrangements, the client business remains the “managing employer,” retaining decision-making power over compensation, projects, workload, and more.

Can I hire international remote workers without worrying about compliance and payroll?

In a perfect world, yes. But in reality, international laws can make it tough to hire workers abroad.

What do I need to hire globally? 

You'll need an employment partner like an Employer of Record (EOR) / a Professional Employer Organization (PEO).

Which is more affordable, a PEO or an EOR? 

If you already own a legal entity in the country, a PEO might be more affordable. But if you don’t, an EOR is generally cheaper and faster than setting up a new entity.

How do EORs and PEOs handle HR tasks?

Both manage HR tasks like payroll, benefits, and tax deductions. However, with a PEO, you are solely responsible for compliance with local labor laws.

What does PEO stand for in HR? 

PEO stands for Professional Employer Organisation. They provide HR services to businesses and act as a co-employer, taking on responsibilities like payroll, benefits, and compliance.

How much does a PEO cost?

Costs vary, but PEOs typically charge either a percentage of your total payroll / a flat fee per employee per month.

Why do companies use PEOs?

Companies use PEOs to streamline HR operations, save time on administrative tasks / provide better benefits to employees. Businesses using PEOs grow faster, experience less turnover, and are less likely to go out of business.

What types of businesses benefit from PEO services? 

Small and medium-sized businesses often benefit from PEO services. They provide a range of HR services without the need to hire additional staff.

What should I consider before choosing a PEO? 

Consider your workplace needs, the PEO’s cost and reputation, their customer service standards, and whether they have the relevant technology.

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