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Expanding your business can be an exciting journey, but it often comes with its fair share of challenges—especially when it comes to hiring and managing employees in new markets. You might have heard of terms like PEO (Professional Employer Organization) and EOR (Employer of Record) floating around as solutions to simplify HR complexities.
But which one is the right fit for your business? Both offer valuable services, but their roles are different. To make an informed decision, it’s important to understand what each service provides and how they can support your goals.
A PEO operates in a co-employment model, meaning you and the PEO share HR responsibilities. While you remain the legal employer and manage the day-to-day operations of your employees, the PEO takes care of HR tasks such as payroll, benefits administration, and compliance with local labor laws.
This is particularly useful for companies that already have a legal presence in the country and want support in handling complex HR and administrative work, allowing them to focus more on their core business activities.
PEOs are quite popular in markets like the U.S., where businesses need assistance managing HR tasks without giving up control over their employees. According to the National Association of Professional Employer Organizations (NAPEO), businesses that use PEOs grow 7-9% faster than those that don’t and have a 10-14% lower employee turnover rate. This shows how PEOs can contribute to both growth and employee retention.
An EOR is a bit different. The EOR becomes the official, legal employer of your employees, taking on all the legal responsibilities of employment. This includes hiring, payroll, taxes, benefits, and ensuring compliance with local laws and regulations.
The key difference here is that the EOR assumes full liability for employment. This makes EORs ideal for companies expanding into new countries or markets where they don’t have an established legal entity. With an EOR, you can quickly hire staff in new locations without having to go through the lengthy process of setting up a local business entity.
For instance, if you’re a company based in Singapore but want to hire developers in Vietnam, using an EOR allows you to legally employ those developers without setting up an office or legal entity in Vietnam. This not only saves time but also reduces the risk of compliance issues. Research shows that 60% of companies expanding globally choose to work with an EOR to simplify market entry, which is why many refer to comparisons of the top EOR companies to guide their decision-making.
Here’s a quick comparison to clarify the key differences:
| Aspect | PEO (Professional Employer Organization) | EOR (Employer of Record) |
| Employment Status | You are the legal employer, co-employment arrangement | EOR is the legal employer, handles all employment responsibilities |
| Services Provided | Payroll, benefits, compliance, employee administration | Hiring, payroll, benefits, compliance, and full legal employment |
| Entity Requirement | Requires you to have a legal entity in the country | No need for a local entity, EOR acts as the legal employer |
| Control Over Employees | You manage day-to-day operations and employee management | EOR handles both HR and legal obligations, while you manage daily tasks |
| Liabilities | You share certain liabilities with the PEO | EOR assumes full liability for employment matters |
| Use Case | Best for businesses with an existing entity needing HR support | Ideal for expanding into new markets without setting up a legal entity |
A PEO can be an excellent solution for businesses that:
Example: Let’s say you’re a Singapore-based company expanding operations locally or within the region. You already have a legal entity in the country, but you need help managing payroll, employee benefits, and ensuring compliance with local employment regulations. A PEO can take care of these tasks, allowing your team to focus on growing the business.nistration in Malaysia, ensuring you comply with local laws while you concentrate on delivering great service to your clients.
Read Related Article : Top Considerations When Choosing a PEO Provider
An EOR is the better choice if your business:
Example: A U.S.-based company wants to hire developers in Indonesia but doesn’t want to go through the process of setting up a local office. By using an EOR, they can hire and manage Indonesian employees without taking on the legal responsibility themselves. The EOR handles everything from payroll to compliance, making it easy to get started in a new market.
The choice between PEO and EOR depends on your business needs and growth strategy. Here’s a quick guide:
According to a recent survey by Globalization Partners, 87% of companies planning international expansion in the next year are considering using an EOR to help them navigate complex employment laws in foreign markets. This highlights the growing trend of businesses opting for EOR services to simplify global expansion.
Both PEOs and EORs offer valuable services that can simplify HR and compliance tasks. If you’re looking to streamline your HR operations, improve efficiency, or expand into new markets, understanding the differences between these two options is key to making the right choice.
Ultimately, your decision should be based on your business structure, growth plans, and HR needs. If you’re still unsure which option is best for you, we’ve put together a helpful resource to guide you further.
If you’re leaning toward using an EOR for your business, don’t miss our EOR Checklist. This guide will walk you through everything you need to know about working with an EOR and how it can benefit your business. Fill out the form below to download your checklist and get started!
By choosing the right HR partner, you can focus on scaling your business while leaving the complex tasks of HR, payroll, and compliance to the experts.
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