What is PEO and How Does it Work Compared to EOR?

Expanding globally opens doors to growth, yet it also introduces complex hurdles. From grappling with diverse regulations to effectively managing human resources, businesses face multifaceted challenges. Essential to overcoming these obstacles is grasping solutions like PEO – Professional Employer Organisation and EOR – Employer of Record, which have become more widely used in recent years. For instance, the global EOR market is expected to have a compound annual growth rate (CAGR) of 12.07% by 2030 – with the market size reaching US$ 3745.43 million by that year, according to Yahoo! Finance.

These entities play vital roles in ensuring compliance with local laws and facilitating smooth expansion. In this blog, we’ll delve into how PEOs and EORs are used in international business expansion, understanding their core differences, and what to consider when expanding a business with them.

How does a PEO operate vs. an EOR?

The core distinction between how PEOs work as opposed to EORs is in their specific role as employers:

Employment RelationshipPEO vendor becomes the co-employer of the employee along with the client company. PEO and client share legal responsibilities.EOR hires the worker as their own employee, and seconds the employee back to the client. EOR fully shoulders all legal responsibilities.
Employment ContractEmployees sign two employment contracts – one with the PEO provider and one with the client.Employees sign only one employment contract which is with the EOR provider.

To elaborate, both may offer a host of HR services such as payroll, administration, and regulatory compliance – but the extent to which they offer these services will vary. Secondly, as employers, there is a distinction between how much control, responsibilities and liability they have.

Read also: All your Frequently Asked Questions on PEO and EOR Answered!

What are the key differences between the two?

  • Employment Control and Flexibility

Now, let’s look more closely at the ways in which PEO can be distinguished from EOR:

As previously noted, PEOs function as co-employers alongside the client, affording the client a degree of control and flexibility in managing various aspects related to employees. These include:

  1. Administrative tasks
  2. Decision-making
  3. Onboarding/offboarding procedures
  4. Payroll, leave, and other HR functions

In contrast, an EOR takes full responsibility for these tasks, relieving the client of any concerns. For clients venturing into unfamiliar territories or new locations, this option ensures little to zero burden in managing employee-related matters, especially in navigating unfamiliar local employment practices.

  • Scope and scale

PEOs may require a minimum number of employees to access certain benefit packages. On the other hand, an EOR is better for businesses relying on temporary staff or seeking talent in different locations through a wider talent pool. EORs typically have no minimum employee requirements, allowing businesses to hire even one employee in a specific region.

In terms of scope, PEOs offer HR services in locations where a business already operates, while the client remains responsible for complying with location-specific labour laws. In contrast, an EOR possesses extensive expertise in local hiring practices and laws, which is better suited for clients who want to expand to a completely new location.

  • Costs and Time

PEOs and EORs typically adopt similar pricing structures, involving both upfront and ongoing expenses. These costs commonly include either a flat monthly fee per employee or a percentage of the monthly payroll. Additionally, a PEO may charge a one-time setup fee for initiating services. However, in the long run, EORs tend to be more cost-effective compared to PEOs.

EORs cover insurance and benefits for your dispersed workforce, resulting in savings in both money and time for your organisation. They typically offer a wider range of insurance coverage with more customisable plans. While PEOs also offer insurance, they are usually more standardised insurance plans that are pre-negotiated with insurance providers. Also, the responsibility of providing insurance is shared between the PEO provider and client, while the EOR provider handles the entire process for the client.

EORs are also more time-effective, often able to hire within 48 hours, as they serve as the legal employer. In contrast, with PEOs, the process may take longer as the client needs to be established as a co-employer first.

Read also: Top 5 Benefits of Expanding Your Business with PEO/EOR

How to choose between PEO and EOR?

To sum up, when deciding between working with a PEO or EOR, here are some important factors to consider:

Hiring/expansion goalsPEOs are more suited for small to medium-sized businesses and usually have minimum threshold of 5-10 hires.EORs can hire as many as the client requires – depending on their capabilities – or even as little as 1-2 staff.
Local expertiseClient is expected to have some expertise on local employment matters as they act as co-employers.Good for companies who do not possess any or sufficient knowledge on local employment matters and would prefer to face a lower amount of risk.
Business risksFor instance, when an employee is terminated, the client and PEO will both have to ensure that termination was done correctly, or they could risk facing a lawsuit.When terminating an employee, it is solely the EOR’s responsibility to comply with local labour laws and ensure the termination is done with due process.
Speed to market, access to wider talent poolEstablishing a co-employer relationship can take weeks to set up. Also, as PEOs are typically used to expand locally, the talent pool is not as wide.For clients looking to expand swiftly, an EOR can hire for the client from anywhere and as quick as under 48 hours./td>

Read also: PEO vs. EOR Services: HR Leaders Should Know the Difference

The choice between a PEO and an EOR is a decision that requires careful consideration and alignment with broader business goals. That being said, many businesses prefer using EOR because it offers flexibility, saves time, is cost-effective and holds lower risks. EOR helps companies enter new markets quickly without the hassle and expenses of traditional hiring. With EOR, businesses can access ready-made infrastructure, run operations smoothly, and grow their teams efficiently. This is a more convenient option and lets companies focus resources on growth instead, making it a top choice for many.

Looking for a partner that can help you expand your business with minimal risks and low costs? As a leading EOR service provider in Asia for 20 locations and counting, we prioritise offering tailor-made solutions to cater to each client’s specific needs. Want to learn more on our services? Get in touch with us today!