If your organisation is dipping its toes into international waters for the first time and you are trying to decide which HR outsourcing model is best to help you build and sustain a global remote workforce, then chances are that you’ve come across the terms Professional Employer Organization (PEO) and Employer of Record (EoR).
Though PEOs and EoRs are both professional HR outsourcing providers that can help you navigate the complexities of international hiring and employment, they are not interchangeable.
Instead, PEOs are uniquely distinct from EoRs, and their distinctions play out both in their definitions and their legal implications from country to country. Ultimately, one will be better suited to your company’s current business expansion strategy than the other.
In this guide, we’ll help you find which is best for your organisation. First, we will define and differentiate a PEO from an EoR. Then, we’ll highlight their meaningful distinctions so you can make an informed decision about what is best for your international company.
Recommended Post: Debunking Top 8 PEO Misconceptions
What Is a Professional Employer Organisation (PEO)?
A Professional Employer Organisation is a company that provides comprehensive HR solutions for small and mid-size businesses.
By providing payroll, benefits, and HR services and assisting with compliance issues under state and federal law, PEOs enable small businesses to improve productivity and profitability.
The strategic advantage that PEOs offer their client is that they take off time-consuming HR administrative duties from the clients’ shoulders and free up their time to pursue revenue-generating tasks.
Once a company decides to work with a PEO, a co-employment agreement is signed. In this arrangement, known as a co-employment relationship, the company contractually allocates and shares its employer’s responsibilities and liabilities with the PEO.
The PEO then becomes a co-employer of the company’s employees. However, the PEO is only an administrative co-employer; it has no power to terminate the appointments of employees or make any strategic decision on behalf of the client.
PEOs provide a comprehensive array of HR and administrative solutions, including:
- Payroll management
- Benefits administration
- Hiring and onboarding
- Proffering expert advice to enable companies stay compliant with local employment laws
- Enabling organisations to meet local customs and industry best practice
PEO Benefits
A PEO is helpful to small- and medium-sized businesses because it takes away the burden of keeping a designated HR team to support their staff.
Working with an experienced PEO gives companies immediate access to these benefits:
- Top-notch benefits for your employees at very competitive rates. This is possible because PEOs are usually big companies that can aggregate their companies’ employees, affording them greater negotiation power. This saving is then, in part, passed on to their clients.
- Lower HR overheads
- Simplified payroll process and tax preparation
- Expert advice on regulatory compliance and management of legal risks
- Up-to-date advice on industry best practices and benchmarks
- Improved employee experience
- More time to focus on business and productivity
PEO Limitations
The one significant limitation to working with a PEO is that they can only service your company if it is registered and domiciled in the same country as your employees.
This means you have to set up a local entity (i.e., incorporate a company or register your business) in the jurisdiction where your employees will work.
Registering a business and setting up the relevant infrastructure can be time-consuming, expensive and complex, especially for international SMEs seeking to expand into multiple countries.
A PEO is only suitable for your company if…
You are expanding your operations into a country, setting up a local entity, and require local HR support for your remote team.
In this scenario, PEOs can help take away some of the workload associated with HR functions and could save your company money.
However, if you’re looking to hire talent globally without setting up local entities in each jurisdiction, a PEO may not be a suitable model for your business.
Good Read: 9 Things to Consider Before Choosing a PEO as Your Market Expansion Partner
What Is an Employer of Record (EoR)?
Though EoRs offer very similar services to PEOs, there is one significant difference. While PEOs are co-employers with their clients and are only in charge of the HR aspects of a business, an EoR serves as the official employer for the new staff hired through them.
In other words, an EoR stands in as the legal employer of its client’s employees and shoulders all the legal burdens required of employers.
EoRs are especially helpful for companies that want to hire international talent or enter a new market without the legal hassle of setting up an entity in the country.
Since employers are responsible for paying taxes and providing benefits for their staff in compliance with the law, they are usually required to open a new branch of their business in their new employee’s country of residence to hire them legally.
This process takes time and is usually expensive, especially when a business wishes to open branches in multiple countries. Businesses that don’t wish to take this route collaborate with an EoR to fast-track their business growth.
How an EoR services its clients
An EoR hires, onboards, manages and pays staff on behalf of their clients. They shield their clients from the bureaucratic worries of setting up entities in the country in which the client wishes to do business.
When businesses collaborate with EoRs, they can skip the formality of opening a branch because they can leverage the EoR’s ready-to-use HR infrastructure.
This frees the client of the cost, time and distraction of bureaucracy. More importantly, it allows the client to focus on growing their business.
For example, suppose you need to hire teams in two or more West African countries, all that you will need to do is provide an EoR like Workforce Africa with information about the kind of employees you are looking to hire (their skills, capabilities, and experience), and provide the remuneration details.
After that, it is Workforce Africa’s job to secure the talent, navigate the countries’ local laws, and handle all the paperwork for onboarding the employees.
Because EoRs sign the employment contract alongside the new employees, they become the legal employer of these employees on paper. Nevertheless, in essence, the client company is the real power behind the throne.
Only the client has complete control over the employee and the work they are doing.
PEO vs EOR: Which Should You Choose?
The real question is: what is your business strategy, and what does your company need as a result? The decision of whether to work with a PEO or EoR depends mainly on the international business expansion strategy you have chosen to pursue.
If you prefer to set up a local entity in each country where your talent may be based and would like someone to manage the HR and payroll burden, an international PEO would probably be appropriate for your needs.
However, if you don’t want to set up local entities abroad, it would be best to work with an international EoR who will act as the legal employer for your remote workers.
In addition, an EoR helps you reduce your liabilities when you enter a new market. This can help to create lower overhead costs overall.
Still not sure which is better?
If your strategy requires something of a custom-fitted HR outsourcing model, and you haven’t determined which is the best choice for you, do get in touch with us. We can help you assess your international business needs and then help you decide which solution is the right fit.
How can Workforce Africa help?
Expanding into new markets requires a lot of expertise, time and monetary investments. International business expansion, especially in Africa, can quickly become complex.
You will need a trusted HR partner to take care of the temporary barriers to your expansion and drive successful revenue growth.
As an EoR with entities in 14 African countries, Workforce Africa can handle your international HR and payroll, local tax and compliance, and benefits administration within the African continent.
Work with us if you need someone to take the bureaucratic burdens of HR processes away, leaving you time to laser-focus on growing your business.
For more information on Workforce Africa services, please click here.