Unless you've had to overcome the challenge of hiring employees abroad, you are most likely not familiar with the terms PEO (Professional Employer Organization) and EoR (Employer of Record). Often, businesses who are looking for their workforce abroad think that both terms state the same. For HR leaders, it is very important to know the different components of each service, so businesses can make the best decision in order to achieve their goals.
One of the main goals for most businesses is achieving a global presence, and if you are among them, one of the crucial steps is hiring a workforce abroad. Human resources is the backbone of every company, and hiring without geographic boundaries is the first logical step of your expansion. However, that is not possible without being legally compliant with every law and policy of a foreign country. That is where HR outsourcing steps in! And when you decide to go that way, you have two options to explore to make the process easy and smooth - PEO and EoR. Let's explore both options and see which one suits your business needs better.
PEO vs EoR at a glance
The biggest difference between the two is that PEOs require you to own a local entity to hire new employees. In that case you will have a co-employment arrangement, while with EoR's you can hire anywhere without an entity and there is no need to establish one. EoR is the legal employer of your workforce and you don't have to worry about being compliant because your partner will take care of that. A PEO partner will also assist you with all the legalities when it comes to employment contracts, but you are the responsible party. Both, PEO and EoR will manage HR tasks such as payroll, benefits, tax deduction, and reporting, but PEO gives you more control over your HR operations.
Before you decide which service to use, ask yourself the following questions.
- Do you have a permanent establishment in a foreign country?
When you are employing someone in a foreign country you have to have a local entity. If you just started and you don't want to invest a lot of time and money into opening a permanent establishment, you can be safe and sound by using EoR services. If you have a legal entity in a targeted country it means that you have the resources to meet all of your employees' needs, so the most logical step is to use PEO services.
- How many employees do you want to hire and where?
Most PEOs require a minimum of five to ten employees to put a contract in place, which is not the case with EoR services. If you don't have a permanent establishment, but would like to hire employees in various countries, then it's easier to choose EoR services to cover them all rather than opening your own legal entity. An EoR service partner can help you stay compliant and hire anywhere in the world, with no limitations.
- What about insurance?
The biggest hidden cost of working with PEOs is insurance. EoRs are providing general liability and workers' compensation insurance coverage, while a PEO may require you to provide your own insurance. PEOs often have difficulty securing WC in non-clerical industries. If your company falls into this category, you’ll probably need to insure yourself.
- How much help do you need with your HR functions?
One last thing is HR support and how much help you need with it. PEO can tackle most of your HR functions - onboarding, terminations, employee reviews, SUTA (State Unemployment Tax Act) rates, health insurance, etc. An EoR lets you outsource some or all of your HR tasks and helps manages your overseas employment.
Should you choose EoR or PEO?
PEO and EoR are similar, but they address different pain points. If you require someone who will help your HR team in managing the administrative part of your business expansion than a PEO service is for you. On the other hand, if you are searching for someone who will help you expand your team and manage them on day to day basis then you should opt for an EoR. At EuroDev, we can help you with both solutions. If you would like to learn more about your possibilities and discover the best solution for your European expansion, feel free to reach out. Our team is here to answer all of your questions.
EuroDev, established in 1996 with offices in The Netherlands, has a single, defined purpose to help mid-sized North American companies expand their business in Europe. We have created a proven, successful business development model and since our founding, have partnered with over 500 companies to help them define and meet their European business goals. Services provided include Sales Outsourcing, HR Outsourcing, and Digital Marketing.
Source: Business News Daily, IES, Kalibrr