PEO or EOR? How to Decide Which Service is Right for Your Workforce

PEO or EOR? How to Decide Which Service is Right for Your Workforce

Published December 10, 2019

Workforce management has certainly been experiencing a period of sustained and rapid evolution as technology and globalization exert dual, disruptive influence over what had been a very stable paradigm for labor use and utilization. There are many newer and innovative workforce practices and service providers that now crowd the field, each with a shiny new acronym: EOR, AOR, BPO, SOW, PEO and others. No one could fault executives in today’s market for getting confused. Today’s post will examine the differences between two similar yet distinctly different offerings—professional employment organizations (PEO) and employer of record (EOR) services to help clarify the differences between them.

Both a PEO and EOR service are designed to decrease the burdens associated with utilizing workers and protect the hiring organization against risk. And while there is some overlap between the two services, there are some important distinctions that define the differences.

For example, when it comes to the most basic business model definitions, an employer of record assumes the sole employer role for the contingent employees utilized by its customer. When an affiliate hires or assigns a contingent worker through and employer of record, the EOR provider assumes full responsibility for things like tax and benefits administration, classification compliance, etc. Whereas the PEO is a joint employer and the PEO shares employer responsibility with its client.

In the area of professional liability, the EOR as sole employer assumes liability for the errors and omissions that may occur in a temp or contingent employee’s work performance. The EOR carriers insurance to cover that exposure. A PEO does not accept liability for such exposure and typically requires a client’s indemnification against any such claims.

Another distinction exists with regard to the type of personnel employed by an EOR and a PEO. An EOR strictly employs temporary labor for its client but not branch staff/full time employees. In contrast, the PEO acts as the administrative employer for its client’s entire workforce—contingent and permanent staff. No PEOs are willing to co-employ temp workers.

Always a critical consideration, financing differs between the two service offerings. An EOR provider finances and advances all payroll expenses itself and then recovers the costs by invoicing its client for remittance. PEOs on the other hand require their clients to pay the total loaded cost of each payroll in advance.

The last major difference is observed with respect to the supporting services offered. A full service EOR like People 2.0 provides payroll processing, employment administration, benefits, on-boarding, accounting service, sales and management consulting, and enterprise software management. They even aggregate supplier purchasing agreements and deliver a broad array of back-office support. The PEO is more limited in scope, typically providing only payroll processing, employment administration, benefits and limited HR support.

Both services are deliver great benefit to the organizations using them, but deciding which model makes sense for your organization means understanding what each service does and does not address. If your organization is considering engaging this type of service, talk to your People 2.0 representative today to explore which one best suits your workforce strategy and requirements.

Contact us today to learn more.