PEO and EOR services have made it possible for HRs throughout industries to hire remotely while aiding the company in remaining profitable in the long run. With the growth in popularity of both PEO and EOR services, companies have been opting for these services more commonly than hiring in-house employees. Likewise, outsourcing has also helped companies grow financially as well as achieve their targeted goals while also ensuring employee satisfaction. Legal compliance, similarly, is not at all an issue when you are outsourcing through a reliable service provider.
It may often be difficult for company owners to decide whether PEO or EOR service suits their company the best. One can, however, easily decide this by acknowledging the size of their company’s operation to choose between the two.
In this blog, you will find the perfect guidance as to which service is the right one for your organization. Make sure to read till the end!
What is a PEO?
PEO or professional employment organization is a service that can be outsourced and acts as a third-party co-employer for a company. It is not always feasible for companies to hire multiple in-house employees to manage the human resources duties. Also, not everyone they may hire is going to be professional in the work. Therefore, PEO becomes a complete solution for companies to save costs while also getting efficient employees without having to spend too much time and effort on them.
Insurance companies tend to view PEO service as a bigger body for insurance, as they have better health and business insurance plans for the company’s employees. Additionally, PEO service providers tend to handle many more aspects of a company related to employees, including better client coverage, benefits administration, taxes and legal compliance, and employee compensation. If you are relying on a better PEO service provider, they are likely to add risk management, including hiring and firing employees, to their overall service.
What is an EOR?
If you are hiring an EOR or employer of record service, then you will be able to outsource the company’s overall human resources duties. Anyone who is hired by your company will directly sign an employee contract, not with you, but with the EOR service provider. This makes them the direct employer for the employees. Though this service includes handling the majority of the human resources aspects, it does not include taking care of the day-to-day activities in an office. Furthermore, as a company owner, you will always have the liberty as to how you want the company to run.
One of the biggest advantages of EOR service to many companies is that you are not the direct employer of the employees. Therefore, employee affairs become the liability of the EOR service provider instead of the company. If you are thinking of expanding your company’s operation to more than one state, then this service is the one to opt for.
How are PEO and EOR services different?
A lot of people tend to confuse PEO and EOR services. Although they seem similar to one another at the surface level, they are different in many aspects. Before considering one over the other, company owners and human resources managers have to be very wise and thoughtful about their company’s needs and their expectations with outsourcing.
The following are some of the major differences between PEO and EOR services:
Structure
A major difference between PEO and EOR services is the way they both are structured. PEO services work as a co-employer and do not directly employ a company’s employees. On the other hand, EOR services work to directly employ the employees and become their employer fully.
Sharing liability is common when you choose PEO service. They don’t hold the full liability of your employees’ affairs as does EOR service. The latter is the sole in charge of risk management in a company unlike the former.
Facilities
The facilities provided by both PEO and EOR are different from one another, though similar. If you want to hire an employer who is going to take care of a fair amount of human resources duties in your organization while remaining compliant, then you can opt for PEO. The service does not quite handle the overall human resources tasks and the company’s in-house HR and owner will have to do their bit in managing the employees.
As for the EOR service, much of the human resources tasks are done by the service providers.
This, however, does not mean that they are going to handle the company’s day-to-day tasks. It is up to either a human resources manager or the owner to take care of the smaller everyday company affairs.
Growth
Another major difference between PEO and EOR service is to determine how much and what type of growth you wish for your company in the longer term. A business that wants to hire a full-time employee who will stay for a longer duration in the company can choose the PEO service. The service providers tend to work as partners for your company, which also helps you find those who are willing to work for a longer-term instead of working as independent short-term workers.
On the other hand, EOR service hires seasonal independent workers who won’t stick around with you for the long term, as do the full-time employees. Different companies have varying needs for different functions, and the service providers remain compliant with the legal laws of the country as per the short-term necessity of companies as well. A benefit of outsourcing EOR is that hiring even a short-term employee does not become a legal hassle, as you are freed from the burden that comes with otherwise.
Adjustability
The adjustability of PEO and EOR varies from one another. EOR services can be very complex but they are not as long lasting as the PEO services. A company that wants to hire short-term workers without having to remain committed to them for a long period needs EOR, while those seeking full-time and long-term employees can choose PEO.
Moreover, EOR is more flexible than PEO given it can hire and finish a contract with an employee as per the requirement of the hiring company. So is not the case with PEO.
Cost
PEO service providers will charge you as per the employees handled. Their services are going to cost you more than the EOR service providers. You may also have to pay them on a one-time setup basis. The payroll percentage fees are likely going to revolve around being 15% of the gross wages paid by the company.
EOR is cheaper in the sense that it covers the insurance and benefits of your company. Due to this, the overall cost is smaller than that charged by PEO service providers, despite the likeness of the fee structure of both services.
Which among PEO and EOR services is better for your organization?
Choosing between PEO and EOR services for your organization can be very simple if you know what either of the services stands for. The size of your company, the probability of growth, legal liability preferences, cost, and flexibility are some elements that can help you make the right choice.
The following are some factors that will help you make the decision:
Size of the company
If your company has more than 10 employees, then you should choose PEO as it will help you hire employees who will stick longer with your company. EOR specializes in hiring independent employees who work for your company on a contract basis, so if you have less than 10 employees in your organization and don’t plan on hiring more full-time ones, then you should choose Employer of record instead.
Globalization
Companies who wish to globalize their workforce can rightly choose EOR over PEO. On the other hand, if you want to hire employees for a remote team, then PEO is the service for you. The former will help you grow not only in your country or locality but globally, while the latter limits you from doing so.
Partnership
EOR service providers do not promise long-term partnership to a company. They also work independently and cover all the human resources duties of a company which changes the nature of partnership as compared to that provided by PEO service providers. PEO assures that companies get a long-term partnership with them and work co-dependently.
Liability
One company may want to free itself of all the risk management duties and liability related to employees while the other may want to have a direct hand in the same. Choosing EOR service means they become liable for your employees while going for PEO means that you are responsible for the liability of your employees partially.
Conclusion
An organization cannot simply generalize the preferability of either EOR or PEO services. Both facilities have different aspects that may or may not be suitable for different companies. Making the right decision always takes the business owner or the human resources manager to analyze the nature and needs of their own company.
