Both PEOs and EORs provide outsourcing solutions for essential human resource functions, but they have important differences to be considered when picking the right organizational partner.
Over the last few years, no talent strategy conversation seems complete without mentioning professional employer organizations (PEOs) and employers of record (EORs). While this type of enterprise has existed for a long time, the rise of the “right talent in the right place” mentality has resulted in a substantial increase in requests for their services.
Both PEOs and EORs provide outsourcing solutions for essential human resource functions, but they have important differences to consider when picking the right organizational partner. It is important to understand what they are, when they can be used, and the services each can provide.
PEOs: Co-Employment and HR Functions
PEOs are known as co-employers. They will handle certain HR functions but will not have control over the business decisions or strategies. A PEO will help a company run the business, while limiting some liabilities, but will not run the company itself. The in-house HR department will ultimately be responsible for the employees and adherence to local labor laws. For companies with globally mobile populations, the PEO can be used as an on-the-ground partner to help with local HR activities during the assignment, but the in-house team and, ultimately, the employees will be responsible for any contributions, taxes, or reporting in the home country.
The type of functions one chooses to outsource can be few or many, depending on the in-house expertise and other elements. Most PEOs will assist with payroll and benefits, as well as tax and regulatory compliance—all important if the employee population is in-house, but increasingly so if they are working from home or in multiple states. Other benefits could include worker’s compensation, unemployment, retirement accounts, training, onboarding, and more. The PEO will be able to offer expertise throughout the nation without the HR team having to maintain knowledge on the rules and regulations of each state, in the case of domestic relocation programs.
EORs: Enabling Global Hiring
Because a PEO works with the organization but does not own the employment contracts, the business must be registered in the country where services are performed. In the case of an EOR, on the other hand, the EOR can employ people on a company’s behalf in countries where it does not have a physical entity. The EOR will be the legal employer and provide the HR and compliance functions on the enterprise’s behalf.
Especially if a company is looking to hire one or a few people, setting up an entity in a new country might not make financial sense or could be too time-consuming. EORs will allow the organization to hire the right talent no matter where they happen to live and bring the right talent in the right area no matter where they are needed or where they are from. Since the employees work for the EOR directly, it holds the employment liability. Maybe a company wants to hire a specialist with the exact needed credentials that can take their product to the next level, but the employee can’t leave their region. Or maybe they need an expert to move to a specific country or area to best service their clients, but they are unable or unwilling to set up a permanent establishment in that region. EORs make global hiring possible.
Considerations for Selecting a Provider
What should corporations keep in mind when selecting a provider?
Location – If an organization has physical entities in all the areas of interest, PEOs might be the most affordable solution. If not, an EOR will expand the potential hiring area.
Size – PEOs are recommended for small and medium-sized business. Global enterprises that might need more flexibility in hiring could find higher value in partnering with an EOR.
Number of people to be hired – PEOs usually require an employee minimum of five to 10. EORs can help hire that one employee needed to serve a particular client, or an entire team.
Timeline – Starting a facility in a new state or country can be time consuming. Hiring using an EOR can save valuable time. But if the company has already started the process of establishing a permanent entity, it could make sense to wait until fully operational and hire locally using a PEO and in-house expertise.
Budget – A PEO is typically more cost effective if new locations are not needed. However, working with an EOR is more cost effective than opening various new entities in different countries or areas.
Expertise – The current and desired in-house expertise in the new location will impact the type of service requested. Does the organization have a local team that fully understands the laws and regulations of hiring in the area? If so, the company might benefit from having a local team accompanied by a PEO. Or they might prefer an EOR deal with those complexities while they keep a minimal team in that country.
Strategic Impact of the Right Partnership
While a PEO will assist with specific HR functions, EORs can become a true strategic ally. WERC members reported using their EOR partners in times of unforeseen crisis to rapidly evacuate or relocate employees from areas of concern. As the relationships were already established and the EOR had information on the company and its transferees, it could quickly offer advice and relocation assistance, including moving employees to third-party countries where the EOR could operate, even though the organization itself did not have an entity.
No two PEOs or two EORs are exactly alike; it is up to each organization to ensure their chosen partner is right for them both at the start of the relationship and as it grows globally. Keeping the above in mind should help start the process, but the companies must ensure the partner they select has similar values and can fit its desired processes and culture.
If you are interested in learning more about PEOs, EORs, and their services, be sure to attend one of WERC’s events in 2024 where suppliers will be present to answer your questions. The Global Workforce Symposium 2023’s EOR Industry Vertical is available for viewing in the Learning Portal for members.
Anca Maritescu is the business development manager at WERC.