PEO vs EOR: What's the Difference?

If you’ve ever scratched your head over HR jargon, you’re not the only one. With so many acronyms, the world of HR can feel like alphabet soup. Two terms that often are mixed up are PEO (professional employer organization) and EOR (employer of record). These are two different types of services that businesses can use to externalize the management of many common HR tasks. As a business owner there are some key differences between the two that are important to learn.

What is a PEO?

PEOs offer a comprehensive range of human resources services, such as payroll processing, benefits administration, recruiting, risk management, and compliance assistance. PEOs are typically responsible for managing the entire employee lifecycle, from recruitment and onboarding to termination. This allows companies to outsource their human resources functions to a single service provider, making it easier to manage their workforce.

What is an EOR?

An employer of record (EOR) is a service provider that takes on the legal responsibilities and obligations of being an employer for a business's employees in another country. This means that the EOR becomes the official employer for payroll, benefits, tax purposes, and other employment-related matters, while the employees themselves perform their duties for the client company. The EOR handles tasks such as payroll processing, tax withholding, compliance with labor laws, and providing employee benefits. By using an EOR, employers can outsource the administrative burdens of being an employer, allowing them to focus on their core business activities.

Advantages & Disadvantages of a PEO vs. EOR

PEOs and EORs both offer advantages and disadvantages to companies. Here is a breakdown of the key points:

Advantages of a PEO

1. Cost savings: PEOs can help companies save money by pooling employees from multiple businesses together, resulting in lower costs for employee benefits, insurance, and payroll processing.

2. Access to specialized expertise: PEOs like Justworks PEO have HR professionals who can provide guidance and support for various HR-related matters, such as employee relations, compliance, and training.

3. Streamlined processes: PEOs can handle administrative tasks, such as payroll, tax withholding, and benefits administration, allowing businesses to focus on their core activities.

Advantages of an EOR

1. Quick access to talent: EORs can provide companies with immediate access to a global talent pool, which can be beneficial for businesses that need to scale up quickly or require specialized skills outside the United States..

2. Control over the hiring process: EORs allow companies to have more control over the recruitment and selection of their employees. This can be advantageous if a company has specific requirements or prefers to have a direct say in the hiring process.

3. Flexibility: EORs offer flexibility in terms of contract duration for both employees and independent contractors, allowing companies to engage workers for short-term or project-based assignments.

Disadvantages of PEOs and EORs

1. Liability issues: If an EOR is not managed correctly, there can be legal and compliance risks for companies. It is important to ensure that the EOR is compliant with labor laws and regulations.

2. Limited access to additional services: Some EORs may focus primarily on acting as the legal employer and may not offer additional HR services

How Justworks Can Help

PEOs and EORs can both be great options for a business. If you’re a small or medium-sized business operating in the U.S., Justworks PEO can help streamline running your business. Small businesses partnering with Justworks gain access to vital services including payroll processing, benefits administration, compliance support, and user-friendly HR tools. 

Justworks also offers EOR services in popular markets along with international contractor payments in 50+ countries. Ready to get started? Contact us today!