Like any expert in their field, a skilled HR leader should possess the necessary knowledge and familiarity with the features of the tools available to them.
Professional Employer Organisation (PEO) and Employer of Record (EOR) are often used interchangeably in HR as a service that helps companies to expand locally and/or internationally. A PEO/EOR provider usually acts as the legal employer of a client’s employees and seconds the employee back to the client under a service agreement.
However, it is crucial for HR professionals to have a clear understanding of the key characteristics of each service offering, as there are differences that would affect the business regarding operations, risk management and business liabilities.
While on the surface, both PEO and EOR seem to be a solution used to take on headcount for a company, the way they do it is quite different, and they each take on different levels of legal responsibilities. To help you better understand the differences between PEO and EOR, we’ve summarised the key differences below.
How are employees classified under PEO vs. EOR?
The crucial distinction between a PEO vs. EOR arrangement relates to the employment relationship.
When opting for a PEO service, the PEO vendor becomes the co-employer of the employee along with the client company. This means that the PEO vendor takes on certain responsibilities for various HR functions some including:
- Employee reviews
- Benefits administration
- Tax withholdings
When opting for an EOR service, the EOR becomes the legal employer of the employee. This means that the EOR vendor takes on all employer responsibilities including payroll, taxes, benefits administration, compliance, and legal liabilities. The client company delegates the employer-related tasks to the EOR provider, while the client company still maintains control over the employee’s job duties and day-to-day tasks.
What is the minimum quota when acquiring a PEO service vs. EOR service?
PEO vendors work with small to medium-sized businesses, and usually have a minimum employee threshold of between 5-10 employees (varies between different vendors).
EOR vendors also carry varying minimum requirements – with some catering to as few as 1-2 employees, while others carrying high thresholds.
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How does employee insurance vary between a PEO provider vs. EOR provider?
Employee insurance differs based on the specific offerings of each vendor. A brief comparison includes:
- EOR providers often offer a range of insurance coverage including health.
- EOR providers provide more flexibility in customising insurance plans to match the needs of the client.
- As the legal employer, EOR providers typically assume full responsibility for securing and managing insurance coverage for your employees.
- EOR providers focus on providing high-quality coverage to attract and retain top talent for their clients.
- PEO vendors often leverage the combined employee pool of all their client companies to provide access to group benefits.
- The responsibility for insurance is often shared between the PEO vendor and client company, as both are considered co-employers.
- PEO vendors often offer standardised insurance plans that are pre-negotiated with insurance providers.
Read also: Entity Set Up vs. EOR/PEO in China
PEO vs. EOR – How is the employment contract handled?
When working with a PEO provider, employees typically must sign two contracts: one with the client company and one with the PEO provider.
- The client company retains control over day-to-day tasks, job duties and management of the employees.
- The PEO provider assists with ensuring that both the client company and PEO vendor are compliant with local labour laws and regulations.
When working with an EOR provider, employees typically must sign one employment contract with the EOR provider.
- The contract outlines job duties, compensation, benefits, and other important details.
- The EOR provider is responsible for ensuring that the contract complies with local labour laws and regulations.
Expanding in Asia? Check out Links’ Guide to Hiring in Asia!
Upon business expansion, who bears the responsibility for business registration?
With PEO, the client company retains its legal status as the employer of its employees. Business registration and legal entity formation typically remain the responsibility of the client company.
With EOR, the EOR becomes the legal employer of the employees. The EOR provider often handles the necessary business registration and legal entity formation in the country where the employees are located.
Still uncertain? Feel free to connect with one of our representatives to learn more about our services and see how we may help you address your HR needs. With over 20 years of HR expertise in Asia, Links International offers comprehensive in-country EOR/PEO services, ensuring a seamless process to hire anyone, anywhere in 48 hours! Expand your overseas workforce with Links Asia focused secondment and sourcing solutions.