The Differences between PEO and EOR – PEO (Professional Employer Organization) and EOR (Employer-of-Record) in recent years are often used interchangeably in HR as a service that helps companies to expand locally and / or internationally. So the use of the terms “PEO” and “EOR” has become common in Asia, where companies will refer to this kind of service for the assignment, outsourcing of jobs, or sending workers.
However, it is very important for HR professionals to have a clear understanding of the main characteristics of each service offering, because there are differences that will affect the business regarding operations, risk management and business obligations.
While in Indonesia both PEO and EOR services seem to be the solution used to take the number of employees to a company. The way they are carried out is very different and they each take on a different level of legal responsibility. To help you better understand the differences between PEO and EOR, and we have summarized the main differences in this article.
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Classifying employees in PEO and EOR
An important difference between PEO and EOR arrangements is related to the employment relations. In managing PEO services, PEO vendors will enter into ‘working together’ relationships with the organization and become part of the organization’s HR group, managing administrative activities such as payroll, orientation, termination, employee reviews, benefits, administrative services, etc. In essence, most work obligations and responsibilities will still be in the hands of the organization.
The EOR service, on the other hand, takes full administrative and responsible work arrangements for the organization. Here, EOR vendors employ staff and manage all responsibilities as legitimate employers, while returning them to the organization.
Work contract handling
Although PEO can assist in handling contracts, the contract itself is between the employee and the client while the EOR;
As implied in the term (Employer-of-Record), in the case of EOR, the employment contract is between the employee and the EOR vendor. However, the details of the work can and are usually mandated through a service agreement between the EOR and the client.
When it comes to business expansion, aside from recruiting more employees, companies can also expand their geographical presence. Because PEOs are seen as partners, organizations that want to expand geographically through PEOs, are still required to establish and register entities in business locations.
While EOR, on the other hand, already has a registered business in the country of interest. This means the organization can recruit employees in other countries, without having to register the entity, as long as the employee is managed according to EOR arrangements.
Quota to get PEO or EOR services
EO services usually have a price basis to secure their income. In general, the PEO will place a minimum of five to ten employees to ensure that there are enough people before entering into a joint work agreement with the organization.
EOR is very different in this perspective, because they are usually ready to work with a smaller amount (as little as one or two), making it the best solution for organizations that want to start small on expansion plans.
For insurance to be covered by the PEO, the insurance must be chosen by the company and paid in addition to the PEO service fee and outside the mandatory requirements. However, the advantage of PEOs over EOR is that they will usually have access to cheaper insurance plans because of ties with insurance companies.
This is possible because PEOs usually deal with a larger number of employees, giving them a closer relationship with the insurance company and allowing them to negotiate for a better insurance agreement. In contrast, insurance plans will be more expensive for EOR, but will be listed as part of the general service package, because the EOR is legally required to provide insurance coverage and workers’ compensation for employees under their wing.
Getting the right service provider
The point is that, as an experienced HR professional, what you need to know is the point of pain you are trying to overcome and what workforce strategy you want to achieve.
PEO and EOR are very different qualitatively and are solutions to two very different needs. The best way to think of both is as follows. PEO is intended for companies who want to improve their HR function with external assistance. In this case, this is a solution directed at the company’s HR function and is more long-term in nature.
EOR is a solution for companies that want to expand quickly, flexible ways to get talent, either by bringing in a contingent workforce to help with current business demands, or through geographical expansion without the need to set up an entities in other countries.