An estimated 87% of major US firms believe that global expansion is necessary for survival in the 21st century. Yet, so few businesses are actually making their way into international markets. What’s the holdup?
Expanding overseas isn’t as simple as it may sound at first. Think about everything you need to know to remain compliant in the US: federal, state, and local labor laws all come into play, amongst dozens of other moving parts. The same goes when you expand to other countries.
This is where we turn to the debate between EOR vs PEO. Both services can make it easier to expand both domestically and internationally. The question is, which one is right for your business?
Read on to learn more about EOR vs PEO and which one to choose when you’re trying to expand.
What Is EOR?
EOR stands for employer of record. As the name suggests, an EOR serves, on paper, as the employer of a business’s employees. In other words, even if you’re calling the shots, providing the products and training, and facilitating your business’s profits, your EOR is considered the employer of your workers.
Why would you want to partner with an EOR? EORs allow you to hire international employees without having to establish a business entity in those countries. They take care of ensuring that the way your employee is treated, compensated, and scheduled is in compliance with that country’s labor law, amongst other things.
What Is a PEO?
PEO stands for professional employer organization. Many people assume that a PEO is the same thing as an EOR or, at least, that it’s very similar. The reality is that while the two do share common features, they serve distinctly different functions. A PEO does not operate as the legal employer for any business and instead acts as a sort of partner.
Why would you want to partner with a PEO? We’ll take a closer look at PEO benefits later on, but for now, we’ll leave it at this. A PEO allows you to remain in charge of your company both legally and logistically while taking care of just about every HR function there is.
EOR vs PEO: Breaking Down the Differences
When trying to understand what both an EOR and a PEO are, it’s helpful to break down some of the differences. You already know that an EOR is a legal employer while a PEO is more akin to a co-employer. Now, let’s look at how these entities operate differently based on the different services they provide.
Payroll and HR Services
Your human resources department doesn’t just deal with employee disputes. HR is also responsible for things like payroll and ensuring that employees receive their allotted benefits.
When you work with an EOR, a percentage of your staff will be taken care of by the EOR. In other words, the EOR will take on HR and payroll responsibilities for some of your employees. You will remain in charge of the rest.
A PEO, on the other hand, assumes all responsibilities for all employees. Working with a PEO allows you to 100% outsource human resources duties so that you can focus on core operations.
In order to partner with an EOR, you don’t need many employees. In fact, you will need a minimum of 1-5 employees that will be under the EOR’s legal employment. This is why many businesses that hire contractors or seasonal workers opt for an EOR.
In order to partner with a PEO, you will need a minimum of 5-10 employees. This makes a PEO ideal for companies that want to share co-employment over permanent employees or a large number of contractors or seasonal workers.
As we mentioned earlier, an EOR makes it possible to hire employees from other countries without establishing a business entity in that country. A PEO does not.
That being said, head to this page to find out about PEOs that work with EORs. Under this type of partnership, you can outsource all HR responsibilities while also hiring employees in countries where you don’t have an established business entity.
Liabilities and Coverage
EORs will provide general liability and workers’ compensation to the employees they are in charge of. As the legal employer, this is their obligation.
Whether or not a PEO provides your employees with insurance will depend on the PEO provider, themselves. Some do provide a portion of insurance coverage for employees while others provide none.
What Are the PEO Benefits?
PEOs are ideal for small businesses that are looking to either expand or offer existing employees better options. For example, many PEOs can provide better HR and benefits to employees than independent business owners can.
PEOs also provide a cost-effective way to ensure that your company is compliant with labor laws around the country. If your PEO partners with an EOR, this compliance extends to the global market, as well.
Ultimately, if you’re ready to start expanding your small business, it’s in your best interest to partner with a PEO. When you can offer better HR services and better benefits, you gain access to the best talent in your industry.
EOR vs PEO: Stay Compliant and Partner Up With the Right Entity
Tons of businesses recognize that if they want to survive, they need to expand. Yet, many of them don’t have the tools to do so, alone. Understanding the difference between an EOR vs PEO is an important start to expanding your business.
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