Something I get asked about a lot is the difference between a professional employer organization (PEO) and an employer of record (EOR).
Though both have similar functions, the value they can bring to your organization varies depending on your needs.
Below we define the two and list their advantages to help you decide which one will help you the most.
What is a PEO?
A PEO partners with your business to perform key HR functions. This can include payroll, tax filing, and benefits administration. In other words, you’re outsourcing your HR department.
This technically counts as co-employment, so your organization still bears part of the responsibilities and liabilities incurred from PEO services.
By hiring a PEO, you leave HR functions in the hands of professionals who have the experience required to tend to your employees more effectively.
Consequently, you’ll be able to delegate more time and manpower to more essential tasks such as upskilling employees. PEOs also allow SMBs to provide the same quality of benefits to employees as larger businesses.
What is an EOR?
Unlike in PEO partnerships, EORs become your employees’ full legal employer. However, they also provide the full range of HR functions a PEO offers.
Normally, EORs are hired by companies that wish to add employees as an expense instead of onto their payroll, or for businesses that don’t have a dedicated HR department but are too small to hire PEOs.
EORs are also commonly used by companies that wish to outsource talent from another country where they don’t have a legal entity.
EORs handle an array of workers, ranging from freelancers and seasonal employees to part and full-time workers. Their services are extremely scalable and cater to businesses of all sizes.
They also provide a single pool of candidates for multiple companies, meaning you’ll benefit from quality talent at a more cost-effective group rate.
How to choose between a PEO and EOR
When choosing between a PEO and EOR, the first thing to look at is the coverage of your business registration, especially if your company manages remote teams or plans to expand across provinces.
Unlike EORs, PEOs usually require you to register in every province in which you’re hiring talent whereas with EOR you don’t.
As full employers, EORs also pay for insurance. Conversely, co-employment schemes with a PEO require you to pay insurance for your employees. PEOs also normally enforce an employee minimum, which means your organization has to be a certain size—for instance, at least 5 to 10 employees—to qualify for their services.
EORs don’t have this restriction and can cater to companies with 1 to 100+ employees on their payroll.
The main crux is that PEOs are generally used for a longer-term HR partnership with companies who want to grow headcount, whereas EORs are great for businesses who want flexibility and easily leverage international talent.
Now you have an idea of which will be best for you, I recommend one of these two articles: