EOR and PEO: Which is best for your company?
With the “employer of record” (EOR) market looking to double over the next decade, according to Business Research Insights, there has rarely been as good a better time for you to invest in this source of talent. Despite that fact, it might be that a professional employer organisation (PEO) is more likely to get you what you want and need to get your business ahead.
So, what differences make each stand out, and how can they help you reach your business goals?
This article aims to demystify the differences between an EOR and a PEO, helping you determine which will better suit your company. Read on to explore how each aligns with legal responsibilities, employee management, and several other areas of human resource organisation.
Overview of an Employer of Record (EOR)
After sourcing talent for a company, EOR services act as the official employer for the individual in question rather than the business they are doing work for. Such help means the client business avoids issues involving taxes and labour laws, reducing the amount they need to concern themselves with the nuances of local employment laws and other regulations. The EOR can handle issues such as worker rights laws and tax obligations, where the client might not know the details.
A strategy such as this might be advantageous when testing the market in a new region, but not wanting to invest in permanent talent. In some cases, a government may even mandate such hiring models for foreign practices to be able to operate legally in their area.
Overview of a Professional Employer Organisation (PEO)
A PEO service works as a replacement for, or enhancement to, an HR department. They handle some or all of the HR responsibilities for a business but allow the business itself to retain control of core operations.
Examples of the areas a PEO involves itself with include:
- Payroll
- Benefits admin
- Regulatory compliance
- Legal oversight
- Hiring and onboarding
Having an external business handle HR allows the company to focus on its core goals while the PEO manages other issues. It can even benefit the company itself by streamlining processes and leveraging pre-existing experience in HR. It generally reduces administrative headaches that might crop up.
At the same time, individual employees have a higher chance of enjoying specific benefits that the business may want to offer but may not otherwise have time to organise.
Differentiating between EOR and PEO
While these abbreviations relate to services that can aid human resource efforts, EOR and PEO focus on very different offerings. Deciding whether you want one or the other will largely depend on your business objectives, although there are specific areas where they differ more than others.
Legal responsibilities and compliance
EORs tend to carry the full legal responsibility for any liabilities regarding employees. Such an organisation can be crucial for businesses setting up in a local region, as it means there can be an employer of note who understands the market. A typical example of this might be the different termination laws in Kenya, which can cause issues if not understood by one party.
On the other hand, a PEO might offer a safety net, but the original owners are still partly responsible for issues that crop up.
Employee management and benefits administration
While an EOR manages the payroll and taxes of any employee, taking the burden off the client business and shielding it from legal and compliance risks, a PEO focuses more on enhancing employee experience. They handle both HR support and benefits, and as such, PEOs are often responsible for areas such as hiring, employee retention, and satisfaction.
Benefits of choosing an EOR vs. PEO
If you hire an EOR, you can often expect a much higher speed and efficiency when hiring talent in a new area. Such a boost is because you will not need to set up any local entities before you get started. Often, you can get going in a very short space of time, saving you on potentially huge outgoings trying to break into a new space.
An EOR can also reduce the complexity of managing such a space due to:
- Understanding local employment laws
- Handling local hiring processes
- Knowing the ins and outs of local employment culture
- Having a vast swathe of local talent already on their books
All these can help you hit the ground running, allowing you to scale up and down depending on your needs. Should you need to stop working in the area, you will also not need to worry about covering the workers’ severance packages, as you will not be their employer.
These companies are also much swifter in reacting to market changes. With an ear to the ground and experience in the area, they will hear about issues and know how to handle them quickly.
If you instead choose to work with a PEO, such companies will have vast experience in handling HR processes and employee benefits. These can give you an edge when trying to appeal to top talent and attract them to your business. Their experience in HR nuances can also offer you an edge in efficiency that you might not otherwise have.
As an ongoing partner with such strong core knowledge, a PEO is a cost-effective option for companies looking to expand domestically rather than internationally. They are also likely to know the best ways to mitigate costs in their area of expertise, further reducing outgoings.
Making the right choice for your business
Understanding the difference between EOR and PEO and which is best for you can help you transform your growth strategy for the better. While both models have distinct advantages, only one will be the best choice for every business. It is up to you to weigh each and decide.
Luckily, companies such as Afrilink Consultants are ideally placed to help you out. With their long legacy in the world of global PEO, they can help you find the solution you need. So, consult with us today at Get in touch today at +254707280366 or send us an email at clientservice@afrilinkconsultants.com to make informed decisions.
