PEO vs EOR: The Difference (And Why It Matters)

An employer of record (EOR) caters to businesses aiming to build and manage an international workforce without bearing compliance liabilities. Meanwhile, a professional employer organization (PEO) is tailored for companies seeking domestic HR and workforce management support willing to accept a shared responsibility for compliance.

Before delving deeper into each company’s distinct services, it’s crucial to clarify the evolving terminology. Numerous companies have adopted and adapted the terms PEO and EOR to distinguish their services. 

Let’s start with an EOR. An EOR allows your business to hire local and international employees in locations where you do not have an established legal entity, run payroll, handle HR administrative tasks, and ensure compliance with domestic and foreign laws and labor regulations where the employees are based. 

Several variations of the term EOR exist, including ‘global employment organization’ (GEO) and ‘global/international EOR.’ They all mean the same thing—that you can hire, pay, and manage a global team. 

A professional employer organization (PEO) is a company that handles various HR tasks such as payroll, tax filing, and benefits administration for your domestic workforce (where you do have your own legal entities).

There are a few variations of the term PEO, which do not mean the same thing. These include ‘international/global PEO,’ a service that functions like an EOR to hire international employees, except it typically uses third-party EOR service providers to engage your international team members in countries where you don’t have an entity, and ‘US PEO,’ a service that specifically handles payroll, HR, and benefits administration in the United States.

EOR vs. PEO: The main difference

The most prominent difference between the EOR and PEO models is which entity legally employs the people who work for you. 

With a PEO, you enter into a co-employment relationship, meaning you remain the legal employer of the people you hire. You are legally responsible for your employees, and the PEO is just there to support your HR functions, such as managing biweekly payroll and employee health benefits. You are still liable if a legal or compliance mishap occurs.

When you engage with an EOR, however, they become the legal employer of anyone you hire: Employees sign employment contracts with the EOR, not your business. You still determine the employees’ wages and evaluate their performance, but the EOR assumes full legal liability for your workers if a legal or compliance mishap occurs.

Below, we’ll explain how this core difference breaks down and impacts:

• How much of the hiring process you have to handle
• Whether you get support for health insurance 
• Whether you need to acquire business registrations
• Who’s responsible for employee contracts and compliance
• How many workers you need to have

EORs handle hiring and international employment for you

EORs serve as the legal employers of people who work for you. For example, if you engage a remote worker from Germany, the EOR’s legal entity in Germany will serve as the employer. The EOR will become fully responsible for local taxes, payroll details, and labor laws, which makes EORs a great solution for companies looking to expand globally.

Think of a PEO as an outsourced HR department with limitations on employment matters (like hiring and contracts). They handle tasks like employee onboarding, employee performance reviews, contract termination, and other day-to-day HR services. Good PEOs also help improve your hiring process and develop employee handbooks. But in the end, you are primarily responsible for managing employment at your company.

✨ Discover how DevBase automated 20+ recruiting and HR processes with Deel.

Both PEOs and EORs offer health benefits for workers

EORs leverage their scale and global network to negotiate comprehensive benefits packages for workers from top insurance providers worldwide. This enables them to provide full-suite insurance coverage, including general liability, workers’ compensation, and other types of insurance, depending on where the employee resides. 

PEOs also offer comprehensive benefit plans that include health insurance, dental and vision care, retirement plans, short-term and long-term disability coverage, life insurance, and accident insurance for your domestic employees. 

✨ Discover how MELD manages its remote team with Deel.

PEOs require you to have business registrations

PEOs are co-employers, which means you still need a business registration wherever your employees reside. This isn’t a significant issue if you hire domestically. But if you plan to hire outside of your country or jurisdiction, you’ll first need to get a business registration or set up a local entity wherever you want to hire.

EORs employ the people who work for you, so partnering with an EOR lets you hire workers wherever the EOR has established a local entity. Deel, for example, has local entities across the US and over 150 other countries. With Deel as your EOR, you don’t have to set up a branch office in a new state or country to hire a resident. Global hiring is a huge benefit for companies looking to break into new markets or hire the best (and not just the nearest) talent.

✨ Discover how Nium saved 12+ months, expanding into a dozen new geographies with Deel.

EORs handle international compliance and legal responsibilities

EORs take on complete responsibility for legal compliance, payroll processing, benefits administration, and employment contracts. This enables you to hire talent globally without worrying about local labor laws, tax filings, or compliance matters. Since the EOR acts as the legal employer, they assume full liability for any compliance issues or concerns that may arise.

PEOs handle some compliance tasks, but as a co-employer, you remain legally responsible for your team. 

US PEOs handle local and state payroll taxes and reporting and can advise on domestic issues like workers’ compensation, OSHA compliance, and COBRA administration. They’re not designed to assist with hiring internationally.

✨ Discover how Cake saved +$3k per hire in compliance costs with Deel.

PEOs may require a minimum number of employees

Most PEOs have certain thresholds regarding the number of employees you must reach. The minimum number is usually between five and ten. This makes PEOs suitable for companies with an existing team but may not be feasible for a new startup.

EORs, on the other hand, don’t have minimum employee requirements. You can hire a single person in a different country without worrying about legal entity paperwork or local licenses. Legal and regulatory compliance is one of the biggest challenges companies face when setting up an entity themselves, along with:

• Financial compliance
• Employment laws
• Data protection and privacy

Choose the solution that meets your long-term needs

If you plan to restrict your operations to your domestic location (or countries where you own entities) and are happy to assume legal responsibility for your local workforce, a PEO can be a great fit. PEOs let you enhance your HR team and focus resources on your core capabilities.

If you’re looking to bolster your current HR, payroll, and compliance functions while expanding your team globally, an EOR like Deel is your optimal choice. EORs enable you to expand across borders without worrying about local compliance or establishing local entities. This is especially important in the era of remote work: partnering with an EOR unlocks access to the best talent in the world, not just the best talent in your area.

It’s important to note that an EOR doesn’t limit you to international hires only; you can still engage domestic employees and enjoy the full spectrum of services provided. However, a significant advantage is the flexibility to recruit talent from abroad whenever necessary. This option isn’t available with a PEO, as it confines you to hiring within countries where your business is legally established.

Other financial benefits of using an EOR include:

• Elimination of upfront expenses of setting up an entity
• Decreased risk of non-compliance fines and penalties
• Lower administrative costs
• Lower tech stack costs
• Cost-effective new market entry

See also: 5 Financial Advantages of Using EOR Services Instead of Entities

EOR or US PEO, you can do it all with Deel

As an all-in-one platform, Deel enables you to hire, pay, and manage your entire global workforce in one platform. With legal entities across 150 countries and counting, our EOR model simplifies international expansion by providing you with:

• Local payroll management, benefits administration, taxes, and compliance
• Competitive benefits packages tailored to each country
• Support from local HR and legal experts
• IP protection
• 68+ integrations for HR, Finance, and more

Should the time come to transition from the EOR model to owned entities, Deel offers continued support through Entity Setup services and Global Payroll. 

We also offer US PEO for clients with a registered entity in the US, so you can offload compliance risks and HR admin and focus on scaling your business across all 50 states and beyond.

You can leverage Deel’s services to suit your needs best. Opt for the EOR model in specific locations, US PEO for your offices in the United States, Global Payroll services for other regions, and Deel Contractor of Record for compliant and efficient contractor management. We’re super flexible.

To discuss your options with an expert, book a 30-minute demo with our team today.