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Employer of Record vs. PEO: Which Is Right For Your Organization?


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Employer of Record vs. PEO: Which Is Right For Your Organization?

Organizations going beyond localized areas to hire talent globally must comply with local legislation, especially when offering payroll and benefits. The options are either Employer of Record (EOR) or Professional Employer organization (PEO).

November 8, 2022
min read
November 8, 2022
8 min read
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Developing and established companies must always find creative and flexible ways to build their distributed workforce. This often calls for going beyond localized areas to hire talent globally. However, employers must comply with local legislation, especially when offering payroll and benefits.

It can be tedious, so business owners should consider Employer of Record (EOR) and Professional Employer Organization (PEO) partners to manage this work. The information below seeks to shed light on these partners for business owners to determine which is suitable for the company.

Employer Of Record (EOR)

An EOR or employer of record is an organization that serves as the employer for tax needs while the employer is in a different location. EORs take on liabilities and employment tasks such as:

●  Handing compensation

●  Processing and funding payroll

●  Processing time sheets

●  Hiring and terminating employees

●  Creating and maintaining contracts

●  Administering benefits

With an EOR, the parent company does not have to set up an entity in the country or state they are hiring employees. They take on the duty of ensuring that the company stays compliant with local regulations. Best of all, an EOR can manage multiple teams.

Advantages Of EOR

1. Precision

Good EORs have the benefit of experience and skills. Tested and proven skills offer more value to the company in terms of precision. They can devise more precise and accurate calculations for payroll and compliance.

2. Time-saving

Another benefit of an EOR is that they handle time-consuming tasks such as drawing contracts, screening potential employees, processing payroll, meeting tax requirements, giving benefits, etc. This way, business managers will have more time to handle other important aspects of the business.

3. Up to date

EORs are responsible for maintaining employee data and keeping up with legislative changes within the local country. It is important as laws can change, affecting the company’s compliance. Therefore, an EOR proves beneficial in such instances. In addition, the EOR makes it easier to update employee data.

4. Reduced risk

EOR experts are the ideal people to handle tax regulations in various countries. By keeping up with various labor laws and tax requirements, EORs ensure that the company remains compliant. There will be less risk, so there are fewer chances of paying hefty fines.  

Shortcomings of EORs

1. Less control

Unfortunately, company owners may have less control over administrative matters pertaining to employers hired in other countries. The EOR manage the employees, including training and compensation. It can, unfortunately, mean disconnection with remote workers, which can affect the workforce.

2. Differences in Needs and Goals

There could be a disconnect in the hiring standards between the EOR and the parent company. If the qualifications and needs are unclear, the company could end up with the wrong employee. The disconnect of business needs is costly in the long run, so employers should be keen on hiring the right EOR service.

Professional Employer Organization (PEO)

A PEO is an organization that leases employers to a company that sets up a local entity. This way, the PEO offers HR services and employment management services. PEOs are in charge of the following:

●  Payroll processing

●  Managing and distributing employee benefits

●  Keeping and complying with local tax regulations

Business owners who agree with PEOs often share responsibilities. The two parties come up with a contract, and the guidelines govern the duties of each.

In this case, the business or company is legally responsible for the employees. So, the company manager is still responsible for hiring, firing, and managing employees while complying with local employment laws.

Small to medium-sized businesses benefit from PEOs because managers can still manage employees, thus retaining an intimate working relationship while outsourcing busy work.

Benefits of Using PEOs

Working with PEOs offers almost similar benefits as an EOR. PEOs take some of the workload away from business managers, allowing them to focus on other tasks. PEOs ensure tax compliance and keep up with any changes that would make the company non-compliant. There is less risk for managers as experts take control of compliance.

PEOs offer the advantage of managing employees. Since managers only outsource some functions, managers remain in charge of the employees. With more control comes the benefit of retaining relationships with remote workers.

Disadvantages of PEOs

1. Delayed communication

There is no exclusivity with PEOs, so there may be delayed communication and resolution issues. This is often an issue with outsourcing any functions to external organizations. It can, unfortunately, cause issues within the company.

2. Responsibility for mistakes

Unfortunately, organizations such as the IRS consider business owners liable for any mistakes. Even if PEOs handle the tax processes, business owners are held responsible for any mistakes that PEOs make.


The following are the critical differences between PEOs and EORs:

●  PEOs are ideal when businesses are setting up local entities. EORs, on the other hand, are suitable for companies that do not want to set up local legal entities.

●  EORs are the legal employers of remote workers. PEOs and the company have a co-employment arrangement determined by the guidelines of the contract.

●  PEOs are more affordable for companies with legal entities in the local country, while EORs are more affordable for businesses without legal entities.

●  PEOs do not provide locally compliant employment contracts, while EORs do.

●  PEOs are not legally responsible for the employees, but EORs take employees as the legal responsibility.

●  In rare cases, PEOs handle expense reimbursements, time off, and holidays. However, EORs take this as a full-time responsibility.

How To Pick An EOR or PEO

There are multiple factors to consider when picking an EOR. The following guidelines are essential for small business managers to ensure they have the right EOR.

1. Client data security

EORs and PEOs need to offer solid security for client data. This data is essential, so small business owners should only entrust it to organizations that can handle and safely store the information.

2. Accessible platform

An effective PEO or EOR offers a good platform with easy accessibility for employers and employees. An effective platform offers speed, sharable reports, invoices, real-time notifications, access to history, and quick payroll.

3. Communication basics

As part of their tasks, EORs and PEOs must communicate with employers and employees. Therefore, they should develop an effective communication platform that adheres to timeliness and accessibility despite differences in time zones.

4. Support in time zone and first language

A good EOR or PEO needs to offer support in the local time zone and language. Employees may have questions about benefits, taxation, and other workers’ compensation issues. Offering support in real-time and in the first language is necessary to manage disputes or offer clarity in good time.

5. Local expertise and global hiring experience

It is important to pick an organization with global hiring experience and local expertise. The process of hiring, managing, and paying remote workers can be complex. Especially when factoring employment laws and tax legislation compliance.

Therefore, business managers need to find a suitable EOR of PEO with experience in global hiring, preferably in a specific country. In addition, the organization should have good knowledge of the local area.

6. Experience with similar organizations

It is good for the EOR or PEO to have experience onboarding or managing employees in the target country and with organizations similar to the company. Managers must ensure the EOR or PEO has worked with similar-sized companies for better outcomes.

Final Thoughts

Small and large business managers can benefit from the EOR services offered by Workpay. They are functionally effective and affordable. These EOR services allow businesses to hire, manage, and pay employees globally without the expense of setting up a local entity. Get in touch to learn more about Workpay.

Workpay Africa
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Workpay is a HR and Payroll software company that offers time & attendance, payroll, human resource, leave, expenses and remote teams solutions to businesses across Africa.

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