EOR vs PEO: What is the Difference Between a PEO and EOR?

EOR vs PEO - not sure what's best for your business? Our employment experts compare PEO vs EOR services, benefits, and risks to help you decide.
eor vs peo
Estimated read time
12
minutes
Category
Employer of Record
Written by
Melissa Hamer-Jackson
Published on
June 4, 2024

Want to hire employees in Canada but unsure which option - EOR vs PEO - is right for your business? The Canadian employment experts at Thirdsail explain the difference between a PEO and EOR to help you decide.

Content at a glance

    What’s the difference between an EOR vs PEO? Many U.S. and other international companies are familiar with the concept of a Professional Employer Organization (PEO). However, fewer are familiar with Employer of Record (EOR) services. So, we’ve created this document to help you decide which - EOR vs PEO - is right for your business.

    In this article, we’ll compare and contrast PEO vs EOR services and examine the advantages and disadvantages of each. Plus, our Canadian immigration, employment, and compliance specialists will provide expert insight and guidance to help you choose between an EOR vs PEO. 

    Here’s what you need to know about employer of record vs PEO services to decide which is best for your business.

    What is an EOR? 

    An EOR (Employer of Record) is an organization that helps other companies hire employees internationally. By partnering with an employer of record, a business can hire employees in a foreign country without owning a legal entity there. 

    For example, an EOR like Thirdsail can help a U.S.-based business with no legal entity in Canada hire employees in Canada.

    When an employer of record hires employees on behalf of another company, the EOR functions as the legal employer. On the other hand, the client company controls day-to-day operations.

    INTERESTING TO NOTE: “international PEO” and “global PEO” can be used interchangeably with EOR.

    To help you decide between an EOR vs PEO, it’s important to understand what services each offers. So, let’s take a look at the typical services provided by an employer of record in Canada.

    EOR Services

    In addition to handling the legal requirements of employment, an employer of record offers employment-related administrative services. For example, most EORs in Canada handle the following tasks.

    Learn more about EORs and the services they offer here - What is an Employer of Record?

    Before starting our EOR vs PEO comparison, let’s discuss what a PEO is.

    What is a PEO?

    A PEO (Professional Employer Organization) is an organization that manages HR tasks on behalf of another company through co-employment. Essentially, a PEO acts as an outsourced HR department (with some limitations).

    For example, a small or medium-sized business may hire a PEO to help them issue payroll, manage tax requirements and employee benefits, etc.

    What is co-employment? Co-employment refers to a business arrangement in which two companies share employment responsibilities and liability.

    As a co-employer, a professional employer organization is not legally responsible for a client company’s employees. Therefore, a PEO cannot help U.S. and other international companies hire in a foreign country unless the company owns a legal entity there. In other words, unlike an EOR, a PEO can only help a business hire employees locally.

    Let’s look closer at the services provided by a PEO vs EOR.

    PEO Services

    Most PEOs provide the following services.

    • Hiring and onboarding (only in countries where the client company owns a legal entity)
    • Employee reviews
    • Contract termination and offboarding
    • Payroll and payroll deductions
    • Employee benefits
    • Support with local employment law and regulatory compliance
    • Taxes
    • HR support (a PEO may partially or completely handle HR on behalf of a co-employer)

    Now that you know what EOR and PEO services entail, let’s examine the differences between an EOR vs PEO.

    What is the difference between a PEO and EOR?

    There are two main differences between a PEO and EOR.

    1. A PEO offers co-employment, sharing employment-related responsibilities and risks with a client company. That is, when a business uses a PEO to hire employees, the business is legally responsible for those employees. 

      In comparison, an EOR assumes full and sole legal responsibility for the employees it hires on behalf of a client company.
    1. A PEO can only help hire and manage employees in countries where the client business owns a legal entity. In other words, if you are a U.S.-based business without a Canadian subsidiary trying to hire employees in Canada (or any other country where your company is not based), a PEO won’t work.

      However, an EOR can be used to hire employees in foreign countries where a business doesn’t own a legal entity.

    In addition to these noteworthy differences, PEO and EOR services often differ in cost. While both offer similar pricing structures, a PEO will generally cost more in the long term.

    What about the similarities between an EOR vs PEO? Let’s take a look.

    How are PEOs and EORs similar?

    In most cases, PEOs and EORs offer very similar employee management services. For example, both professional employer organizations and employer of record companies handle employment back office tasks such as:

    • Employment agreements
    • HR support (although the extent of this support may differ)
    • Payroll and payroll deductions
    • Employee benefit administration
    • Worker’s compensation
    • Taxes
    • Reporting and more

    To help you decide which option is right for you, let’s explore the advantages and disadvantages of a PEO vs EOR.

    What are the advantages and disadvantages of an EOR vs PEO? 

    Below are some of the biggest pros and cons of working with an employer of record vs PEO.

    Advantages of an EOR vs PEO

    EOR Advantages PEO Advantages
    Partnering with an EOR allows your business to hire employees abroad - in locations where you don’t own a legal entity. As a result, you can enter new markets faster and more cost-effectively (compared to establishing a subsidiary). Working with a professional employer organization lets your business quickly and easily hire and manage local employees.
    An employer of record can help your business ensure compliance with employment laws and regulations. As a result, you can avoid penalties and other legal issues. A PEO can help your business comply with local employment regulations and laws, reducing the risk of fines and legal issues. However, compliance is not guaranteed.
    An EOR assumes complete and sole legal responsibility for employees, eliminating employment-related risks and liabilities. A PEO can help mitigate workplace risks by handling complex employee-related matters (e.g., disputes, workplace safety, terminations, etc.). However, as a co-employer, your business is legally liable if something goes wrong.
    EORs offer fast and efficient onboarding. PEOs offer fast and efficient hiring practices and onboarding.
    By outsourcing employment-related tasks to an EOR, you can focus your internal resources on strategic initiatives. Outsourcing HR tasks to a PEO will allow you to allocate more internal resources to strategic initiatives.
    An EOR can help your business find, attract, and retain top talent. A PEO can help your business find, attract, and retain top talent.
    Working with an EOR can help reduce global expansion and HR-related costs. Partnering with a PEO can help reduce HR-related costs.

    Along with these advantages, there are several disadvantages to consider before hiring an employer of record or professional employer organization.

    EOR vs PEO Disadvantages

    EOR Disadvantages PEO Disadvantages

    Hiring and managing employees with the help of an EOR can feel like a loss of control, especially if your business typically manages everything in-house.

    That said, top EORs, like Thirdsail, will approach your business relationship as a partnership. As a result, you’ll maintain full control of day-to-day employee operations - but with the expertise of a professional employer of record backing you.

    Working with a PEO may result in limited flexibility. That’s because professional employer organizations commonly work with specific third-party benefit package providers, limiting you to specific insurance and employee benefit options and packages.

    The EOR you hire will be in direct contact with your staff. As a result, working with an employer of record can impact company culture and employee satisfaction. Therefore, it’s important to discuss an EOR’s views on and approach to employee experience before hiring them.

    For example, at Thirdsail, we believe every employee should be treated like a first-class citizen. Thus, we focus on building strong and mutually beneficial relationships with new employees from the start. By doing so, we can help you create a robust and positive company culture.

    Like an EOR, a PEO will be in direct contact with your workforce. Therefore, working with a professional employer organization can significantly impact company culture and employee satisfaction. To mitigate any negative impact, it is essential to select a PEO that aligns with your company’s values.
    Inadequate digital compliance and data security are potential risks when working with an inexperienced employer of record. Therefore, it’s essential to partner with an experienced EOR, like Thirdsail, that implements advanced data security protocols and focuses on digital compliance. A PEO will also store and have access to your sensitive information, posing digital compliance and data security concerns. As a result, hiring an experienced professional employer organization focused on data security and digital compliance is imperative.
    Unlike with an EOR, businesses that partner with professional employer organizations are, in part, legally responsible for their workforce. Thus, as a co-employer, your business is liable if something goes wrong.
    A PEO can help your business comply with local labor laws. However, compliance is not guaranteed. If a mistake is made, the consequences can fall back on your company.

    A PEO cannot help businesses hire internationally (unless the client business owns a legal entity in the country they wish to hire in). Therefore, if you want to hire outside the country where your business is based, you must set up a subsidiary - a time-consuming and costly feat.

    Alternatively, partnering with an EOR may be more efficient and cost-effective. In some cases, PEO services are not worth the cost. Therefore, it’s essential to conduct a cost-benefit analysis before hiring a professional employer organization.

    For example, a PEO may not be worth it if your U.S.-based business wants to expand and hire employees in Canada. That’s because a PEO won’t be able to help you hire these employees unless you set up a subsidiary in Canada. Setting up this legal entity will come at a significant cost, on top of the fees charged by the professional employer organization.

    Now that we’ve explored the benefits and drawbacks of a PEO vs EOR, let’s examine which is right for your business.

    Which is right for your business - EOR or PEO?

    Thinking about working with an EOR or PEO but not sure which is right for you? Here are some factors to consider when deciding between an employer of record vs PEO.

    What are your business goals?

    Does your company want to expand globally? If you want to hire top talent in an international market where you don’t currently have a legal entity, an EOR is your best bet. An employer of record will help you quickly and compliantly hire and manage employees nearly anywhere in the world - so you can easily enter new markets.

    On the other hand, a PEO may be suitable if you want to hire a local workforce and need comprehensive HR support.

    How many employees do you want to hire?

    To work with a professional employer organization, you may be required to hire a minimum number of employees. 

    EORs, however, will partner with companies of any size. That said, employer of record services are best suited for small to medium-sized businesses that want to hire 1-20 employees in a single location.

    Do you own a legal entity in the country where you want to hire?

    If you want to hire employees in the country where your business is based (or in which you own a legal entity), a PEO may work for you.

    However, an employer of record is the best option if you want to hire employees in a country where you don’t own a legal entity (and don’t wish to establish one).

    PRO-TIP: when partnering with an EOR, be sure they are a direct employer of record. Direct EORs, like Thirdsail, own the legal entities through which they employ your workforce. As a result, they can provide more streamlined and cost-effective services and a better experience for you and your employees.

    What types of businesses can benefit from EOR services?

    • Businesses with limited resources and/or HR expertise
    • Startups
    • Businesses that want to expand internationally
    • Companies with remote workers and distributed teams
    • Tech companies (especially those that want to expand into new markets)
    • Companies with temporary or project-based workers
    • Global consulting firms and professional services

    What types of businesses can benefit from PEO vs EOR services?

    • Small to medium-sized businesses focused on domestic operations
    • Companies with limited resources and/or HR expertise
    • Domestic startups
    • Local service and professional service providers
    • Companies with the financial capital and resources to establish international legal entities

    EMPLOYER OF RECORD VS PEO AT A GLANCE:

    • EOR services are best for small and medium-sized businesses that want to compliantly expand to international markets without setting up a legal entity.
    • PEO services are best for small to medium-sized businesses that operate primarily within one country/location and require comprehensive HR support.

    EOR vs PEO - An Overview

    The table below highlights the key similarities and differences between an EOR vs PEO to help you choose the best option for your business.

    Employer of Record (EOR) Professional Employer Organization (PEO)
    Legal employer Co-employer
    Full and sole employment liability Shared employment liability
    Commonly helps businesses hire and retain international talent Typically helps businesses hire and retain local talent (unless the client company owns a legal entity in the international location they wish to hire in)
    Client company does not require a legal entity in the location they are hiring Client company does require a legal entity in the location they are hiring
    Best for businesses that want to expand internationally Best for domestic companies that want to outsource HR tasks
    Handles HR-related tasks and employment back office duties Handles HR-related tasks (partially or completely) and employment back office duties
    Helps ensure compliance with employment regulations and laws Helps ensure compliance with local employment regulations and laws (although compliance is not guaranteed)
    Helps reduce global expansion and HR-related costs Helps reduce HR-related costs
    Partnering with an EOR allows you to focus internal resources on strategic initiatives Working with a PEO will enable you to focus internal resources on strategic initiatives

    Still unsure which option—EOR vs PEO—is right for you? Contact our employment experts for personalized advice and guidance.

    Hire in Canada with the Help of Thirdsail’s EOR Services

    Does your international or U.S.-based business want to hire top talent in Canada? If so, working with an experienced Canadian employer of record with a proven track record is a must.

    The team of legal, tax, and compliance experts at Thirdsail can help. Our EOR services in Canada are trusted, reliable, and cost-effective, making it quick, easy, and affordable to hire employees legally and compliantly.

    Let Thirdsail handle all the legal details and tedious administrative requirements for hiring and managing international employees so you can sit back, relax, and focus on growing your business.

    Want to learn more about how Thridsail can help you expand into Canada? Contact our team today!

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