Employer of Record vs PEO

Employer of Record (EOR) and Professional Employer Organization (PEO) are both outsourced employment solutions, but they serve different needs and operate under different models. Understanding the distinction helps you choose the right approach for your business.

The core difference: an EOR becomes the legal employer of workers in countries where you have no entity. A PEO co-employs your existing staff where you already have an entity. EORs enable international expansion without incorporation. PEOs optimize HR and benefits for domestic teams.

Both models outsource employment administration, but the legal relationship, cost structure, and use cases differ significantly. Let's break down each model and when it makes sense.

Side-by-side comparison

When to use an EOR

EORs are designed for international expansion. You want to hire employees in countries where you have no legal entity. Setting up a subsidiary is expensive ($10,000-50,000) and slow (3-12 months). An EOR lets you hire immediately without incorporation.

The EOR becomes the legal employer. They handle employment contracts, payroll, taxes, benefits, and compliance with local labor law. You manage the employee's day-to-day work, but the EOR owns the employment relationship.

Classic EOR scenario: a U.S. startup wants to hire a developer in Germany. They don't have a German entity and don't want to incorporate. They use an EOR to employ the developer legally in Germany while maintaining operational control.

EORs work well for testing new markets (1-5 employees), hiring specialized talent in specific countries, or maintaining a distributed team without managing multiple entities. They're less suitable for large teams (20+ employees in one country) where entity setup becomes cost-effective.

When to use a PEO

PEOs are designed for domestic HR optimization. You already have a legal entity and employees, but you want better benefits, reduced HR workload, or compliance support. The PEO co-employs your staff, sharing employment responsibilities.

You remain the primary employer. You hire, fire, set compensation, and manage day-to-day work. The PEO handles payroll, benefits administration, workers' compensation, and HR compliance. They provide access to enterprise-grade benefits through their larger risk pool.

Classic PEO scenario: a 30-person U.S. company wants to offer better health insurance and reduce HR overhead. They partner with a PEO, which co-employs their staff and provides access to Fortune 500-level benefits at lower rates than they could negotiate alone.

PEOs work well for small to mid-sized businesses (10-500 employees) that want to compete on benefits, offload HR administration, or ensure compliance without building a full HR department. They're less suitable for international hiring or companies that want full control over HR processes.

Ownership and control

The ownership structure differs significantly. With an EOR, the EOR is the legal employer. They sign the employment contract, appear on payslips, and are responsible for compliance. You have operational control but limited legal authority.

With a PEO, you remain the primary employer. The PEO is a co-employer, sharing certain responsibilities but not replacing you. You make all employment decisions—hiring, firing, compensation, promotions. The PEO handles administrative tasks.

This distinction matters for company culture and employee relationships. EOR employees may feel more distant from your company because they're legally employed by a third party. PEO employees remain your employees, with the PEO operating behind the scenes.

Cost comparison

EOR pricing typically ranges from $49-99 per employee per month, plus local employment costs (salary, taxes, benefits). For a $60,000/year employee, expect total costs of $70,000-80,000 including EOR fees and local employment expenses.

PEO pricing ranges from $40-200 per employee per month, depending on services and headcount. Some PEOs charge percentage-based fees (2-12% of payroll). For a 30-person company with $2M payroll, expect $40,000-240,000 annually in PEO fees.

The cost comparison depends on your situation. For international hiring, EORs are cheaper than entity setup for small teams (1-10 employees). For domestic teams, PEOs can reduce total HR costs by providing better benefits rates and eliminating the need for full-time HR staff.

Compliance and liability

With an EOR, compliance responsibility sits primarily with the EOR. They're the legal employer, so they must ensure contracts, payroll, taxes, and benefits comply with local law. You're responsible for operational compliance (workplace safety, non-discrimination), but employment law compliance is the EOR's job.

With a PEO, compliance is shared. The PEO handles payroll tax compliance, benefits administration, and workers' compensation. You remain responsible for employment practices, workplace safety, and non-discrimination. Both parties share liability in a co-employment relationship.

This distinction matters for risk management. EORs provide more complete compliance coverage because they own the employment relationship. PEOs provide support and expertise but don't eliminate your compliance responsibilities.

Hybrid strategies

Many companies use both models. Use EORs for international employees in countries where you have no entity. Use a PEO for domestic employees where you do have an entity. This hybrid approach optimizes costs and compliance.

Example: a 50-person U.S. company with a PEO for domestic staff also uses an EOR to hire 3 employees in Europe and 2 in Asia. The PEO provides better benefits for the U.S. team. The EOR enables international hiring without entity setup.

Another strategy: start with an EOR for international expansion, then transition to a local entity once you have 10-20 employees in a country. The EOR provides speed and flexibility for testing markets. The entity provides cost savings and control for established operations.

The contractor alternative

Before committing to EOR or PEO, consider whether you need employees at all. For many roles, independent contractors provide similar value with less complexity and lower cost.

Contractors don't require EORs or PEOs. You engage them directly, pay via Wise/PayPal/Payoneer, and avoid employment overhead. For project-based work, specialized skills, or flexible capacity, contractors often make more sense than employees.

The trade-off is control and commitment. Contractors work independently, set their own hours, and may work for multiple clients. Employees provide more integration and loyalty. Choose based on the nature of the work and your need for control.

Common questions

Can I switch from EOR to PEO? Not directly. If you want to move from EOR to PEO, you first need to establish a legal entity in the country. Then you can transfer employees from the EOR to your entity and engage a PEO for co-employment.

Which model is faster to set up? EORs are typically faster (1-2 weeks) because they don't require entity setup. PEOs also move quickly (2-4 weeks) but require you to already have an entity.

Do employees know they're employed by an EOR/PEO? Yes. EOR employees receive contracts and payslips from the EOR. PEO employees see the PEO on certain documents but remain primarily employed by you.

Can I use multiple EORs or PEOs? Yes. Many companies use different EORs for different countries or different PEOs for different employee groups. This adds complexity but can optimize costs and services.

The bottom line

EORs and PEOs solve different problems. EORs enable international hiring without entity setup. PEOs optimize HR and benefits for domestic teams. Neither is inherently better—the right choice depends on your situation.

Use an EOR if you're hiring internationally and don't have a local entity. Use a PEO if you have a domestic entity and want better benefits or reduced HR overhead. Use both if you have international and domestic teams. Use neither if contractors meet your needs.

The key is matching the model to your needs. Don't default to EOR or PEO because they're popular. Understand what you're trying to achieve, evaluate the trade-offs, and choose the simplest solution that meets your requirements.