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Two of the main options for countries to outsource their human resources functions include a Professional Employer Organization (PEO) and an Employer of Record (EOR). While both of these types of organizations will help a company outsource its HR functions, they operate in different ways. These distinctions are important to understand so you can find the right fit for your business. Here’s everything you need to know about EOR vs PEO.
SERVIAP can help with your global expansion needs. Contact us today to learn how you can expand your business with PEO in South America and Latin America.
What is an Employer of Record?
An Employer of Record (EOR) will take on the full responsibility of the workers it employs to help you handle your HR functions. The company hires the employees and is responsible for all the administration as well as any liability related to that. An EOR acts as the legal employer of these workers and handles the employment contracts.
Benefits of an Employer of Record
One of the main benefits of hiring an EOR is how business registration is handled. The EOR will be fully registered in the country where it operates. This means that any organization that hires an EOR doesn’t have to worry about registering as a legal entity in other regions to outsource there.
In addition, an EOR will typically work with companies on smaller solutions. They may only require their clients to hire them for a project that accounts for the work of two employees.
Disadvantages of an Employer of Record
One of the downsides to an EOR is that employee insurance plans often cost more money this way. It’s true that your company won’t have to pay for those insurance plans directly to the employees, but you’ll still incur the pass-through costs the EOR will levy on you.
What is a Professional Employer Organization?
The biggest difference between a Professional Employer Organization (PEO) and an EOR is that a PEO will enter a “co-employment” agreement with its clients. In essence, the PEO is the HR “arm” of the company and manages all of the administrative functions. The PEO will handle onboarding, employee reviews, training and terminations, benefits, payroll, and other administrative services.
Benefits of Professional Employer Organization
A major advantage that a PEO has over an EOR is the cost of providing employee benefits. Because PEOs are typically larger companies, they can provide a potentially large cost-savings when it comes to insurance plans. PEOs often have solid relationships with large insurance companies, providing more options when searching for cheaper and better insurance plans than smaller companies typically do.
Another benefit of a PEO is the wide range of services they provide. They typically are more well-versed in the full function of an HR department, providing a full range of services to their clients through the co-employment arrangement.
PEOs will often allow companies to pick and choose which services they want to be handled through the arrangement. This model could help to lower the cost of outsourcing, as you only pay for the services that you need.
Disadvantages of a Professional Employer Organization
PEOs are often a better fit for larger companies. They may have a minimum of anywhere from five or 10 employees that must be dedicated to a contract to make it work for them. Additionally, companies that hire PEOs must register their businesses in the location where they want to do business. Since they are co-employers, they also must abide by local employment and business registration laws no matter where they set up—in their own country or abroad. The best PEOs, like SERVIAP, will provide access to licensed HR professionals and attorneys that can help mitigate your employment-related risks.
Employer of Record or Professional Employer Organization
An EOR is typically a good fit for smaller companies that are looking to realize benefits of outsourcing while limiting their liability and reducing costs.
A PEO is a good fit for medium- to large enterprise companies that are looking to take their HR department to the next level. It’s best to think of hiring a PEO as a long-term solution rather than a short-term way to grow quickly. The PEO will work as a partner with your company to help you manage advanced HR functions as you focus on other areas in-house to grow.
Expand Your Business
SERVIAP is a leading Professional Employer Organization (PEO) ready to help your business expand operations throughout the Western Hemisphere. PEO is a model of co-employment, where we assume total responsibility for your talent, allowing you to focus on the strategic activities of your organization. Contact us today to learn more about how you can expand your business in South America and Latin America.
Get more information about EOR | PEO services here.
