Are you, by any chance, feeling somewhat confused about “EOR vs. PEO: What’s the Difference?” If so, you’re not alone. In this article, we will, first, clarify the similarities and, furthermore, explore the differences between an Employer of Record (EOR) and a Professional Employer Organization (PEO). By doing so, we aim to provide you with a clearer and more comprehensive understanding of each concept.
What is an EOR?
An EOR functions as the sole legal employer of an organization’s talent, and takes on the responsibility for complying with local employment laws typically related to things like:
- New employee onboarding
- Payroll
- Benefits management
- Taxes
In an EOR relationship, employees who have questions related to things like source deductions from their pay or submitting benefit claims direct their inquiries directly to the EOR. Direct all other issues and matters related to an employee’s day-to-day work experience, such as their role and responsibilities, to their supervisor or manager within the organization.
What is a PEO?
Similar to an EOR, a PEO provides organizations with outsourced HR-related services such as payroll, benefits administration, tax filings, and ensuring regulatory compliance. However, the critical difference is that unlike an EOR, a PEO does not officially and legally hire an organization’s talent. That responsibility remains with the organization. Essentially, a PEO functions as an organization’s outsourced HR department. As such, they are commonly referred to as “co-employers” rather than “employers.”
EOR vs. PEO: What’s the Differences?
The table below summarizes the key differences between an EOR and PEO across three categories: structure, legal responsibility, severance/termination, and payments to employees.
| Category | EOR | PEO |
| Structure | An organization does not need to be a legal entity in the country where it wants to hire employees. | An organization must be a legal entity in the country where it wants to hire employees. |
| Legal responsibility | When hiring international employees, an EOR is the employee’s official legal employer, and assumes all legal responsibility.
This includes ensuring that employees are governed by locally-compliant employment contracts, and managing collective agreements. |
When hiring international employees, the organization remains the employee’s legal employer and assumes all legal responsibility. |
| Severance/termination | An EOR is responsible for handling issues related to severance and termination. | A PEO can advise an organization on issues related to severance and termination. However, the organization is responsible for ensuring that they are handled in an appropriate and compliant manner. |
| Payments to Employees | An EOR is responsible for paying an employee’s salary, benefits, and bonuses in local currency. | In some cases, a PEO is responsible for paying an employee’s salary, benefits, and bonuses in local currency. However, some countries require payments to be made directly by an employee’s legal employer. |
Understanding Global PEO’s and Their Impact
Perhaps the biggest source of confusion when trying to understand the differences between an EOR and PEO is due to entities called “Global PEOs.”
Essentially, global PEOs are the same thing as regular PEOs. The “global” part is really more of a marketing term, and designed to attract organizations from abroad who want to hire employees where the PEO operates. In order to do this, the international organization must establish a legal entity in the country — which takes several months and involves significant costs.
The easiest and simplest way to avoid this confusion is to view things as follows:
- If an organization does not want to establish a legal entity in the country where it wants to onboard workers, then it MUST use an EOR.
- If an organization wants to establish a legal entity in the country where it wants to onboard workers, then it can use a PEO (or so-called global PEO, which as mentioned is the same thing).
EOR vs. PEO: which option is Better for your Organization?
This is one of those questions where the answer is “it depends.” An EOR is neither inherently better or worse than a PEO (and vice versa). For some organizations, an EOR is the right (or possible only) option for their current and anticipated needs. For other organizations, a PEO makes more sense. There are many factors to analyze, including scalability, cost, and risk.
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