EOR vs PEO: Make the Right Business Decision

July 4, 2023
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In the era of globalisation, companies plan to expand their businesses beyond their borders for scalable growth. However, achieving a presence in foreign territories requires careful consideration of resources to hire and manage new teams.

Payroll and compliance or recruiting foreign workers are intertwined with the complexities of local labour laws. The global expansion also brings several HR challenges to countries like India, which follows diverse rules and regulations across states. 

Companies thus rely on employer of record (EOR) or professional employer organisations (PEO) to facilitate a smooth process. These firms help a business expand abroad while ensuring total compliance and taking responsibility for all the HR functions and employee management. It thus becomes crucial to understand the functions and services offered by these firms to make correct business decisions. 

In this article, we give you a comparative analysis to understand the difference between PEO and EOR, to make a wise choice per your requirements. 

What is an Employer of Record?

An EOR service helps businesses recruit employees in different countries on behalf of their company without having to establish a legal entity. It takes responsibility for legal requirements to ensure total compliance with local laws and employee benefits. It handles HR functions like onboarding, payroll processing, tax compliances and administrative tasks. 

It acts as a legitimate employer for your company on paper but gives control of organisational culture to the parent company. The biggest advantage of using an EOR service is that it is quicker and more cost-effective than the tedious process of setting up one’s own legal setup in a foreign country. Companies wanting to enter new markets can avoid the intricacies of global employment by partnering with an experienced EOR. 

Advantages of EOR 

Hiring Without Setting up Entities: The biggest advantage of using an EOR service is hiring across borders without establishing a separate legal entity. You can access diverse international talent and complete all administrative tasks via the EOR. 

Reduces Paperwork: An EOR takes a lot of administrative responsibilities from making contracts, handling employee documentation and payroll processing. It can also help in visa processing for foreign employees. It significantly reduces the paperwork associated with new hires. 

Easy Local Compliance Management: Countries have differing labour laws and regulations. An EOR service with operations in a particular country is experienced in the legal framework and ensures you are legally compliant in team management. From drafting customised contracts to ensuring local taxation in compensations, they assure regulatory compliance in whichever country you hire from. 

Better Risk Mitigation: An EOR handles all the legal responsibilities of compliant hiring, managing payroll, filing taxes and HR tasks, safeguarding you from facing any penalties for non-compliance. 

Swift Expansion in Newer Markets: An EOR allows hiring international employees from multiple countries, allowing you to explore newer markets. For example, a US-based company can learn about Indian business culture, market demographics and demands if they hire a few Indian employees into the team. With EOR fastening this hiring process, you can also diversify your workforce without establishing a branch office.

What is a Professional Employer Organisation?

A PEO offers HR outsourcing services to companies having legal entities in foreign countries. They act as co-employer and handle hiring, payroll, benefits management and tax compliance. They assist in managing risks and cover basic HR functions, while the business administration can focus on growth. A PEO complements the internal HR team to provide insights into local labour laws and employee benefits. 

A PEO is typically suited for small and mid-sized businesses with local entities but limited resources to scale growth. It handles all the comprehensive HR tasks such as payroll, risk management, employee tax calculations, attendance sheets, etc. Some PEOs also have talent services such as hiring, employee training and development and managing performance reviews.  

Advantages of PEO

Acts as Co-employer: A PEO takes the role of a co-employer and shares a lot of responsibilities with regard to hiring, payroll and employee management. 

Completely Outsource HR Functions: A PEO allows complete outsourcing of HR functions. From undertaking training to payroll processing, all HR administrative tasks are handled by the PEO. It provides expert support to your in-house HR team, so you don’t have to bear any headaches with administrative tasks. 

Enhanced Onboarding: A structured onboarding process can improve retention rates by 52%, and PEOs can help organisations achieve the best hiring experience. Using their expertise and well-integrated systems, a PEO can help to integrate new hires into a company's culture smoothly. 

Shared Liability: PEOs reduce the liability on the employer alone. PEOs take liability for payment of wages and compliance with all the local rules and regulations. This is especially beneficial for small businesses protecting them from any potential lawsuits for violations.

EOR vs PEO: Difference Between EOR and PEO 

While the functions offered by both EOR and PEO are similar, there is quite a bit of difference between the two models. Let us look over PEO vs EOR in detail: 

Business Registration

The easiest way to differentiate between EOR vs PEO is the need to set up a legal entity. 

If a company has registered a legal entity in a nation, it needs assistance from a PEO. On the other hand, if a company wishes to expand without forming its own legal entity, EOR is the best option to help them navigate HR functions, local labour laws, payroll and compliance. 

Role

An EOR acts as a legal employer for new recruits on behalf of the parent company. During the hiring process, an EOR signs the contracts with the employees. It assumes all employment responsibilities for your workforce based in foreign nations. 

A PEO acts as a co-employer or a joint employer with the organisation. The company remains the legal employer for the new employee. PEOs share and manage employee responsibilities such as benefits, compensation, payroll and taxes with the parent company. 

Employee Liabilities 

An EOR reduces and assumes employee liability with their expert knowledge of local laws. They issue compliant employee benefits as per the requirements of the legislation. 

In a PEO arrangement, the client (employer) and PEO service share the legal liabilities such as payroll, employee compensation, expenses and benefits management. 

HR Functions 

The HR functions undertaken by EOR and PEO are very similar, but there is a slight difference in the scope of tasks. 

A PEO completely outsources all HR tasks, from recruitment and training to performance management.  It complements the in-house HR team to help them with local administration.

An EOR handles a portion of HR functions. But some of the best EOR services can also provide end-to-end HR solutions from onboarding quality talent to accurate payroll processing. Because it acts as your legal employer, it is better equipped to manage the company’s compliance needs. 

Risk Management 

PEO, being a co-employer, shares employment risks, legal or financial non-compliance with the company. It acts as a partner to your business. 
An EOR assumes full responsibility for compliance, payroll, legal and employee benefits on the company’s behalf. 

Costing

An EOR is more affordable and faster than a PEO if the company does not own a legal entity in the geography in which it wants to expand. However, if it already has a legal entity, a PEO may be better.

An EOR saves time and money in setting up your own entity, and streamlines the hiring process to a few days rather than months. 

Some PEOs may also have a hefty introductory cost and may demand a percentage of your employee’s monthly salary. 

EOR or PEO: What Does Your Business Need?

Ask yourself these questions to help decide which structure is more suited for your business: 

  • Do you own a legal entity where you wish to hire?

If you want to hire an employee from India but don’t own a legal entity there, you must partner with an EOR. 

  • Do you want an office space for your remote employees? 

You can give your new remote employees a complete in-office experience by partnering with the right EOR. Rapid, one of the best EORs in India, has a provision to arrange office spaces and IT equipment for your hired employees. 

  • What is your company size?

Small businesses wishing to scale in foreign territories require major costs to set up. It can approximately cost about $700-$1000 to register and at least a couple of months to start a new business. If you want to utilise that time and money in scaling business operations, opt for an EOR and onboard international talent. 

For large companies with offices in multiple regions, PEOs can help effectively manage HR functions. 

  • What is the level of control you want for your management?

EOR services offer more flexibility in building your own organisational culture. If you partner with an expert EOR platform like Rapid, it gives employers complete control over implementing office policies with respect to salary structure, holiday calendars and more. 

  • What is more cost-effective?

Most companies operate on a specified annual budget. To register your own company in foreign territory, you will need to understand the different business structures, acquire necessary licencees, hire directors and ensure compliance to the varying local laws. This can take a couple of months. Hiring an EOR in India can be more cost-effective in terms of time and money as EOR charges per employee per month.  

EOR Vs PEO: What Works Best for International Employees? 

Businesses that wish to diversify their workforce by hiring international employees should rely on an EOR service. It helps navigate the local labour laws in different countries and make compliant hiring decisions. An EOR lets you hire international employees without having to set up your legal entity in the country you wish to hire from. 

In case, you already have an establishment in a foreign country and want to increase your workforce with international employees, you should opt for a PEO.

Why Choose Rapid as Your EOR Partner for Business Expansion in India 

Businesses that decide upon partnering with an EOR must choose the right services for a seamless transition in a new territory. Rapid, a trusted EOR service provider in India has deep local expertise to facilitate smooth functioning tailored to your business needs. 

Here are some reasons why you should consider partnering withRapid as your EOR in India: 

  • Rapid helps you seamlessly onboard high-quality individuals in the tech space. 
  • Be assured of expertise in compliance with regards to employee benefits or taxation. 
  • Employees enjoy best-in-class, curated benefits customised as per the local laws. 
  • You can pay your employees within minutes in their local currency. 
  • It assists in providing office space and leasing equipment for your hired employees in India. 
  • It hosts a service marketplace that provides help with recruiting, filing taxes, making health insurance, visa processing, etc. 
  • You have the flexibility to implement your own policies and organisational culture for salaries, holiday calendar etc. . 
  • There is no hidden pricing. Rapid charges a flat fee of $599 per employee per month. It also offers special pricing for startups. 
  • You will also end up saving 18% of your non-salary payments as Rapid practises  passthrough taxation. 

Avail the best of services with a customised approach with Rapid. Book a demo with us today! 

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