If you're hiring internationally or managing a distributed team, you've probably encountered three acronyms: EOR, PEO, and "direct contractor management." They sound similar, but they solve different problems and come with very different cost structures.

This guide breaks down all three models in one place, shows you when each makes sense, and helps you avoid paying for infrastructure you don't need.

Quick definitions

Employer of Record (EOR): A third-party company that becomes the legal employer of your workers in countries where you don't have a legal entity. They handle payroll, taxes, benefits, and compliance while you manage the day-to-day work.

Professional Employer Organization (PEO): A co-employment arrangement where you and the PEO share employer responsibilities. You must have a legal entity in the country. The PEO handles HR admin, payroll, and benefits, but you remain the legal employer.

Direct Contractor Management: You engage independent contractors directly, pay them via payment platforms (Wise, PayPal, Payoneer), and manage contracts, milestones, and documentation yourself. No middleman, no co-employment.

Side-by-side comparison

Factor	EOR	PEO	Direct Contractors
Legal entity required	No	Yes	No
Who is the employer	EOR	Co-employment (you + PEO)	No employment relationship
Best for	Full-time employees abroad	Domestic employees (HR outsourcing)	Independent contractors
Typical cost	$49-99/employee/month	$50-150/employee/month	$99/month flat (up to 25)
Payroll handling	EOR processes payroll	PEO processes payroll	You pay directly via Wise/PayPal
Benefits	EOR provides local benefits	PEO provides benefits pool	Contractors handle their own
Tax withholding	EOR withholds and remits	PEO withholds and remits	Contractors handle their own
Control over work	High (you manage day-to-day)	High (you manage day-to-day)	Medium (contractors set schedule)
Compliance risk	EOR assumes employment risk	Shared between you and PEO	You ensure proper classification
Setup time	1-2 weeks	2-4 weeks	Same day
Flexibility	Low (locked into EOR contract)	Medium (annual contracts)	High (pay-as-you-go)

Who should use what

Use an EOR if:

You're hiring full-time employees in countries where you don't have a legal entity
You need to provide benefits (health insurance, vacation, etc.)
You need to withhold and remit taxes on behalf of employees
You want the worker to be legally employed (not a contractor)
You're willing to pay $49-99/month per employee for this service

Use a PEO if:

You already have a legal entity in the country
You want to outsource HR admin, payroll, and benefits
You're hiring domestic employees (usually U.S.-based)
You want access to better benefits rates through a larger pool
You're willing to share employer responsibilities

Use direct contractor management if:

You're working with independent contractors (not employees)
Contractors work for multiple clients (not just you)
Contractors set their own schedule and use their own tools
You pay per project or milestone (not salary)
You want to avoid $49-99/month per-person fees
You want to pay directly via Wise, PayPal, or Payoneer

Hybrid strategies

Many companies use a combination of these models:

Scenario 1: Core team + contractors
Use an EOR for 3-5 core full-time employees in key markets, then use direct contractor management for 10-20 project-based contractors. This gives you stability for core roles while maintaining flexibility for project work.

Scenario 2: Test before committing
Start with contractors to test a new market or role. If it works out and you want to convert them to full-time, then engage an EOR. This avoids paying EOR fees while you're still validating product-market fit.

Scenario 3: PEO for domestic, contractors for international
Use a PEO for your U.S.-based employees to get better benefits rates, then use direct contractor management for international talent. This avoids the complexity and cost of international EORs.

Common mistakes

Mistake 1: Using an EOR for contractors
If you're working with true independent contractors, you don't need an EOR. You're paying $49-99/month per person for employee infrastructure you don't need. Use direct contractor management instead.

Mistake 2: Misclassifying employees as contractors
If you're treating someone like an employee (setting their schedule, providing equipment, requiring exclusivity), they should be classified as an employee. Use an EOR or PEO to stay compliant.

Mistake 3: Choosing a PEO when you don't have an entity
PEOs require you to have a legal entity in the country. If you don't, you need an EOR or direct contractor management.

Mistake 4: Not considering the total cost
EORs and PEOs charge per-person fees that add up quickly. For 10 contractors, you could be paying $5,000-10,000/year in fees alone. Direct contractor management costs $99/month flat for up to 25 contractors.

Frequently asked questions

Can I switch from an EOR to direct contractor management?

Yes, but only if the workers are truly independent contractors. If they're employees, you'll need to either keep the EOR, set up your own entity, or terminate the employment relationship. See our guide on how to leave your EOR.

What's the difference between co-employment (PEO) and being the employer (EOR)?

With a PEO, you and the PEO share employer responsibilities—you're both legally responsible. With an EOR, the EOR is the sole legal employer, and you're the client. This means the EOR assumes more risk but also has more control.

Can I use Kontrable with an EOR or PEO?

Kontrable is built for direct contractor management, not employees. If you're using an EOR or PEO for employees, you don't need Kontrable for those workers. But if you also have contractors, Kontrable can manage them separately.

How do I know if someone should be a contractor or employee?

The key factors are control, exclusivity, and how they work. If they set their own schedule, work for multiple clients, use their own tools, and invoice you for specific deliverables, they're likely a contractor. If you set their schedule, provide equipment, and they work exclusively for you, they're likely an employee. When in doubt, consult legal counsel.

Next steps

If you're working with independent contractors and want to avoid EOR or PEO fees, Kontrable gives you the tools to manage contracts, milestones, and payments directly—without the middleman.

Learn more about EORs · Do I need an EOR? · EOR alternatives

EOR vs PEO vs contractors