What are the differences between an Employer of Record (EOR) and a Professional Employer Organization (PEO)? Come and find out!
The challenges of global talent acquisition are daunting, due to complex labor laws, stringent tax regulations and numerous compliance measures. These are the cases when a typical HR department rises to the occasion to steer your company clear of all the penalties and ensures you hire global talent compliantly.
However, managing a high-number of employees across the globe demands greater HR capabilities. Furthermore, paying your global employees is a completely different challenge from managing them, as you must avoid paying double taxes and release payroll on time.
Clearly, you need something more than a traditional HR set up. It is time you begin streamlining your international employee management without hiccups. This is precisely where an Employer of Record (EOR) and a Professional Employer Organization (PEO) come into play.
Let’s explore the two concepts in order to help you find out which of these can go well with your talent acquisition objectives.
A Professional Employer Organization (PEO) partners with various companies to provide a wide array of HR services such as payroll processing, international payments, tax filing, employee benefits, workers compensation, and compliance management.
PEOs partner with a local company with a registered entity to manage their workforce. The employee will see the PEO’s name on their payment invoice and other HR communication documents. However, if a business wants to outsource only a few HR tasks, they should collaborate with an EOR provider.
A global Employer of Record (EOR) provides services similar to a PEO, however, they take upon the entire legal responsibilities of the employees. Hence, a business will be able to provide customized HR services to their international employees without worrying about various compliances. This is the best option for small-sized companies looking to tap into the global talent pool without any local entity to hire their desired candidates.
As per a survey, small and medium businesses who rely on PEOs have increased their hiring to 7%. Moreover, their hiring is 9% faster compared to other enterprises without PEOs and the business is 50% less likely to fail. Another study concludes that the EOR market will reach a valuation of USD 6,794.5 million by 2028 at a CAGR of 6.9% thanks to the solution’s secure compliance measures, no additional taxes and the opportunity to expand without a local entity.
The statistics show the real-world success of PEO and EOR. But you must identify the right one for you before signing up.
HR outsourcing, payroll, benefits, onboarding – these are the common terms associated with both PEO and EOR. At the first glance both concepts might mean the same to you; however, there are a lot of differences. It is important to know these differences to better understand your needs.
From an eagle’s eye, an EOR manages everything from legal liabilities to social taxes for your full-time employees across the world so as to simplify global HR management for your company. On the other hand, a PEO shares the responsibilities of onboarding and managing your full-time employees and independent contractors.
Let’s talk about the major points that highlight the distinction between the two onboarding arrangements:
The biggest difference between a Professional Employer Organization and an Employer of Record is the degree of control you get. While both of them can take care of your global HR responsibilities, a PEO can give you more control over the operations.
The PEO will provide their entire range of HR services, including faster contract generation, creating the right employee benefits package and smoother onboarding, for all your employees. They also offer valuable suggestions that will help you make informed decisions in terms of global HR management.
The payroll rules across the globe change constantly and it becomes difficult to keep up with them. However, a PEO has dedicated experts for each country that constantly monitor the compliance risks and ensure that you remain within the legal domain.
If you assemble an internal team for the same task, you will end up spending too much time and resources on hiring the experts, research materials, building a proper system and executing on-time payroll for your global team. Hence, it is smarter and wiser to depend on a PEO in such cases.
Insurance coverage is one of the areas where a Professional Employer Organization and an Employer of Record differ greatly. If you opt for a PEO, you will have to provide the insurance for your global employees on your own.
Obviously, a PEO will take care of tax regulations and insurance in some cases. If your business belongs to an industry where material damage or bodily harm during work is common, a PEO may direct you to get your own insurance. For instance, if you run a delivery service, a PEO will not come for your support in terms of insurance if a delivery executive damages the package or hurts himself during the process. On the contrary, insurance claims such as these are much smoother with an Employer of Record provider.
With an EOR, it is possible to get compensation no matter the country you are in or the country your employee belongs to. Furthermore, an EOR is the better option when it comes to risk management because they take complete liability for cases of such nature.
When you opt for an Employer of Record, you do not have to take the pressure of setting up an entity in whichever country you want to onboard resources. Yes, the EOR can be your local entity in any country. This is applicable even when you want to hire more resources from ten different countries at a stretch. The number doesn’t matter at all. This is the power of an Employer of Record.
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