The terms PEO and EOR are often used interchangeably. While there are some similarities, it's essential to know the most significant differences to consider for your business.
Mitigating risk, remaining compliant, and paying employees are all top concerns for business owners across every vertical. No matter the organization's size and scope, entrepreneurs often assume they must manage essential employee functions such as human resources and payroll internally. However, they quickly recognize that maintaining accurate and efficient payroll and HR functions is far more complex than anticipated.
Worse still, many entrepreneurs realize that struggling to maintain compliance and support their employees takes their focus away from their company's core competencies. To lower the threat of potential penalties and fees and get back to driving revenue in their organizations, these business leaders often outsource payroll and/or HR functions to a third party that specializes in PEO (Professional Employer Organization) or EOR (Employer of Record) services.
PEO or EOR?
Choosing the Best Way to Support Your Employees and Your Business
The terms PEO and EOR are often used interchangeably. While there are some similarities, it's essential to know the most significant differences to consider for your business. Understanding the critical components to each can help you select the right model for your organization. A basic breakdown of each option includes:
Employer of Record (EOR)
An EOR service absorbs employment liability on your behalf. Additionally, your outsourced EOR provider will also assume all administrative back-office responsibilities, such as payroll, benefits, onboardings, and even terminations. Working with an EOR provider means they will employ the workers you choose for as long as you need them, managing all obligations and compliance requirements during that time. An EOR will also manage compliant Independent Contractors (IC’s) and mitigate any risk for your company.
Professional Employer Organization (PEO)
Much like an EOR, a PEO acts as an extension of your organization, delivering HR services and solutions such as payroll processing, benefits, and tax filing. However, unlike an EOR model that assumes responsibility for employing your workforce, a PEO arrangement is considered "co-employment." As a result, the business owners, not the PEO provider, hold all relevant liabilities and responsibilities throughout employment.
Other Distinctions Between a PEO and EOR Support Model
Other distinctions come into play when choosing between a PEO and EOR service. These differences may include:
Business Registration Responsibilities
Companies growing their operations may look to an outsourced EOR or PEO provider to support their expanding business. Often, EOR offers the best way to scale and still mitigate risk. An EOR solution allows companies to hire employees in other states and countries without requiring them to have a physical office in that location. Your EOR already holds a business registration where you're expanding to and leverages that registration to manage your hires under the EOR agreement. If you're using a PEO model, you'd still need to register as a business entity in your new location.
Minimum Number of Workers
A PEO co-employment agreement requires business owners to hire a minimum of five to ten workers. However, companies that choose an EOR don't need to meet a minimum worker requirement. This proves especially helpful for smaller organizations that want to build momentum with a smaller workforce before bringing on new employees.
Insurance Requirements
Insurance coverage is critical for business owners to protect their workers and their operations. When hiring a PEO, you'll have to carry your own insurance and opt in to make coverage payments under your provider's plan. However, an EOR solution means your hires are covered under your EOR’s insurance plan, and they will maintain compliance with all regulations throughout employment for you.
Still Have Questions? Contact Headcount Management Today
Headcount Management offers customized EOR and PEO services to ensure every client finds the right fit for their organization. Contact us today to learn more about how we can help your organization reduce risk, cut costs, and keep your employees paid.
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