For any company targeting the US markets for its global expansion, there are multiple options available in the market. Among these, the two most common and favorable are an Employer of Record (EOR) and a PEO (People Employer Organization).
With reference to their fundamental functions, the two appear to be the same. However, the are several distinctions between the two. In this article, we take a brief look at these differences and assess the best option considering the expansion need of a company targeting the US markets.
But before we proceed, let’s first understand their meanings and what purposes they serve –
What is an EOR?
An Employer of Record in the USA is an organization that helps you to achieve your global expansion goals by streamlining your onboarding and many other such management-related processes.
As we all know, employment laws in the United States are different in every state, with the changes applicable to the general federal laws in the country. So, if your company belongs to another country and you are looking forward to expanding your business to the US markets, you may need expert guidance in dealing with the local issues and employment processes that can suit your requirements. In this case, an EOR can provide you with custom and tailored solutions to handle all the aspects of employment resources in the USA. It manages everything from payroll administration to taking care of the legal aspects of your business. An Employer of Record also helps you attain your global expansion goals by providing expert guidance on the local laws and regulations to guide your day-to-day business operations. So, whether it is your employee onboarding process or seeking help with taxation-related matters, an Employer of Record can be helping hand in carrying out all these processes effortlessly.
What is a PEO?
A PEO (People Employer Organization) is an entity that establishes a joint employment relationship with a company by providing HR services to it. In this way, it helps a company to manage its employee-related responsibilities along with the liabilities that come with it. It also allows you to outsource your human resource functions and take care of related responsibilities, including employee benefits, payroll and taxation, worker’s compensation, and administration.
In simple words, it serves as a helper in employing your employees by providing professional HR Services in the USA to your company. Any company that becomes a client of this organization reports its wages as per the federal standards, and the entire employability shifts to a PEO. In this way, your company can gain economies of scale by getting better options at a comparatively lower rate.
Main Differences Between an EOR and PEO?
While their functions and roles seem similar, there are several grounds of differentiation between the two.
However, there are some common cases where a business needs something more than conventional human resource management to streamline its operations. Here are a few more grounds where the two differ –
- One significant difference between the two is the replacement and complement factors. With a PEO, a business can tackle most of its human resource functions and manage the payroll system. It takes care of all the onboarding processes, terminations, employee reviews, and many more such functions. On the other hand, an EOR helps you manage everything from your legal affairs to social taxes and simplifies global human resource management for your company.
- A PEO is a perfect option to go with if you are looking forward to better flexibility and control over your business operations with additional assistance. While both help you to manage the global expansion of human resources responsibilities, a PEO is a better option in this case. It can help you manage everything from the onboarding process to making informed decisions regarding USA HR management. Going for an EOR may not be a suitable option in this case.
- Whether you need an EOR or a PEO entirely depends on the requirements of your company. Insurance coverage is one of your priorities keeping business global expansion in mind; you should always go with an Employer of Record. These companies hold professional expertise in insurance coverage that can bring many things to the table. On the other hand, if you go with a PEO, you may not get much help with better insurance coverage options. You may either have to seek professional assistance or provide insurance to your global employees on your own.
On the other hand, a PEO can immensely help you out the tax regulations on insurance in some cases. However, if your business belongs to an industry where workplace incidents are a common thing, a PEO can be a better option to go with. An Employer of Record can help you seek compensation irrespective of the nation your workers belong to.