It can be easy to confuse the differences between Employer of Record (EOR) and a Professional Employer Organization (PEO). Although they seem similar, PEOs and EORs provide different services and depending on your needs, one can be a better choice than the other.
What is a PEO?
A PEO provides a comprehensive HR solution for small and mid-size businesses. When a company partners with a PEO, the company continues to control its operations and employee functions, while the PEO takes on the company’s HR-related employer responsibilities, such as payroll, benefits, and tax remittance, as specified in a service agreement. Basically, a PEO functions as a company’s HR department. A PEO can offer these services because they are co-employers with their client companies. This co-employment allows the PEO to assume even more employer responsibilities than an Employer of Record.
What is the Difference?
The most important difference between a PEO and EOR relates to the employment relationship. In a PEO arrangement, the PEO and business would enter a co-employment relationship. In a co-employment relationship, a PEO assumes ALL of the HR responsibilities like onboarding, terminations, employee reviews, State Unemployment Tax Act (SUTA) and Federal Unemployment Tax Act (FUTA) rates, health insurance, and more. Conversely, with an EOR service, you can outsource parts of the HR responsibilities for a part of your workforce.
Another important difference between PEO and EOR services is insurance coverage. EORs will provide general liability and worker’s compensation coverage but PEOs may require you to provide your own insurance. EORs make sure the employees they oversee are covered for damages as well as workplace-related illnesses or injuries.
