PEO (Professional Employment Organization) v/s EOR (Employer of Record)
When an organization grows in size, innumerable HR challenges come to the forefront. It is difficult for the staff members to handle payroll. They have to struggle with providing competitive benefits to attract the right talent within the organization. And it is difficult to cope with the dynamic compliance regulations. That is when the role of a Professional Employer Organization (PEO) or an Employer of Record (EoR) comes into play.
What Is a PEO (Professional Employment Organization)?
A Professional Employment organization is an organization that partners with small and medium scale organizations to provide comprehensive HR services such as payroll processing, regulatory compliance, tax filing, recruitment, training and development, and other services. A PEO is an outsourced HR department providing access to experts yet affordable services.
Company’s Collaboration with a PEO
When an organization collaborates with a PEO, the organization continues its normal line of operations, employee functions, and responsibilities. At the same time, the PEO takes care of the HR-related operations such as payroll processing, tax remittance, etc.
From the employees’ perspective, they will get to see the PEO’s name on the cheques and other documents of HR communication.
Services Provided by PEO’s
Every Professional Employment Organization offers a different set of services that can be customized according to the requirements of the client. The extensive services offered by PEOs are:
- Employee Benefits including medical, dental, or educational assistance
- Payroll Processing that includes payroll compliance and record maintenance
- Administration of Worker’s Compensation
- Compliance Assistance in sync with labor law and employee requirements
- In-house HR Administration
- Employee training and development
- Recruitment and hiring
- Strategic Planning in terms of attracting talent and managing HR costs.
Although a Professional Employment Organization offers a wide range of services, clients have access to the ones based on their needs, and this could lower the PEO’s rate.
Drawbacks of Using a PEO
1. Loss of Control:
Even if the employees of the company are satisfied with the current organizational policies, but the PEO wants to change the current plans, there isn’t anything a company can do about it. It has to comply with the decisions of the PEO as it is the governing body of the organization.
2. Unexpected Changes:
Suppose the PEO decides that the organization it has partnered with is too much of a liability. In that case, the PEO has the right to shift the company to a higher-risk category, making its service price quite higher, which is unaffordable for the organization.
3. Cash Flows:
A PEO may request payments from the partner company in the form of up-front cost, which may affect the partner’s company cash flow unexpectedly.
4. Potential Risk
Although PEO is a co-employer of the organizational workforce, the organization still retains certain rights. It retains certain legal liabilities as an employer. If audited, the organization may face the wrath of penalties for employment responsibilities even if it collaborates with a PEO.
Employer of Record (EoR)
If a business doesn’t want to be associated with a co-employment organization or it refuses to outsource its entire HR function, collaborating with a company that provides EOR (Employment of Record) services may prove to be a better option.
A global EOR offers services similar to a PEO. But an EOR becomes a legal employer, unlike the co-employment arrangement in PEO. Global EOR solutions include handling payroll taxes, payroll compliance, administration of benefits, reporting unemployment claims, and other HR-related tasks.
What should You Opt for — PEO or EOR?
As the business expands across geographies, the employment laws and regulations become more complex and varied for companies operating across different geographies.
If the organization collaborates with a PEO, a company must establish a legal presence across every state or country where it has employees. However, if the company’s EOR is established across geographies, the company can legally employ workers in those states through the EOR.
PEO v/s EOR
A Professional Employer Organization serves as the co-employer of the organization. PEO shares the HR responsibilities and liabilities of an organization. It can take over the entire range of HR functions. PEO is used for the entire workforce of an organization. It provides services for a minimum of 5–10 employees. It works for an organization that has registered in every country or state where its employees exist.
The Employer of Record serves as a legal employer and assumes the responsibilities and liabilities of an organization. EOR takes over a portion of HR functions and can be used for the partial workforce. It provides services for a minimum of 1–5 employees. It allows companies to move to a different state or country without setting up a legal entity. Employment of Record handles worker’s compensation as well as unemployment claims.
