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Employer of Record vs PEO, What is the Difference?


Sometimes accepting more risk is a requirement in order to realize the greatest reward. When your business plan involves new technologies or emerging markets, much of the risk will be related to how quickly you can hire and train workers that will be competent with your new process or technology. The fastest way to flatten the learning curve is to increase the geographic search area. In a global market, you need the ability recruit and deploy talent on a global scale.However, hiring from out of state, let alone out of the country, is fraught with peril. Employers must fulfill the legal requirements of the new hires resident state or nation and most do not have the resources or expertise to handle this. Enter the professional employer organization (PEO) or employer of record (EOR).


Compliance

When you hire out-of-state workers, you must comply with that state’s laws and regulations.

This includes reviewing proof of worker eligibility and paying taxes in the proper states.

Compliance requires you to be familiar with all rules relating to labor and unemployment,

document retention and storage, upfront costs, and proper forms. Maintaining compliance yourself is a headache and carries the risk of potential IRS fines and legal fees. According to

the Department of Labor compliance is the top concern on business owners' minds. When you decide to reduce this workload and risk, you will find that hiring an EOR is much more effective than hiring a PEO.


Employment

A PEO becomes your co-employer. You continue to hold all related liabilities and

responsibilities. When you hire an EOR, the EOR becomes the legal employer of your workers. The EOR assumes all liabilities and responsibilities for those workers.


Insurance

When you hire a PEO, in addition to carrying your own insurance, you must also opt in to and

pay for coverage under the PEO’s policy. When you hire an EOR, your workers are covered

under the EOR’s insurance policy. The EOR maintains compliance with all insurance

regulations, including healthcare mandates. The EOR offers health insurance to your workers on your behalf.


Employment Contracts

If you hire a PEO, the PEO is not a party to any employment contracts with your employees.

You create terms of every employment contract and you remain liable for potential breach of

contract claims. When you hire an EOR, you maintain a single service agreement with the EOR. All employment contracts are between the EOR and your workers. Issues arising from

employment contracts are handled by the EOR.


Business Registration

With a PEO, you are not relieved of the company registration requirement. You must still

register your business in every state where you conduct business or employ residents. However, an EOR is already registered in all states, so you do not have to be.