EOR vs. PEO: What is the Difference?
Getting your employees paid is an essential part of running your business and there is plenty of room for error if due diligence isn’t paid. The IRS reports around 40 percent of businesses face payroll mistakes resulting in fines. Most employers do not have the time or resources internally understand or handle the complexity of payroll. This is why most companies will work with a payroll provider to ensure compliance and timely paychecks.
Payroll services can be complex and confusing for any business owner. Many companies offer helpful services to outsource or manage payroll, but what exactly does your company need and what is the difference between service providers?
Understanding the difference in payroll providers and services will eliminate confusion and allow you to focus on operating your business while ensuring your employees are taken care of. There are two types of services: Professional Employer organization (PEO) and Employer of Record (EOR).
A PEO is a company that partners with your business to provide HR services such as payroll processing, benefits, tax filing, etc. This is known as co-employment and you, as the company, hold all related liabilities and responsibilities.
Employer of Record (EOR) is an alternative payroll solution often provided by staffing companies. An EOR offers many of the same services of a PEO, and they become a full legal employer of the payroll employee. The EOR handles timekeeping, payroll, compliance, benefits, unemployment claims, worker’s comp, etc. Because the EOR is the legal employer, they hold all liabilities and responsibilities of the workers. This is often the preferred method for a company looking to add employees as an ‘expense’ rather than additional headcount or in rapid growth.
The core differences of a PEO vs EOR are based on a few items. In regard to insurance, hiring a PEO you are carrying your own insurance and you have to opt in to pay coverage under their plan. However, with EOR services, your employees are covered under the EOR’s insurance and the EOR maintains compliance with all regulations regarding, workers comp, healthcare, etc.
When you partner with a PEO you remain obligated to state registration requirements and will have to register your business in every state you have employees. With an EOR, the company will be registered in every state they employ in and you will not have to take on that burden until you chose to add permanent headcount in that state.
When looking to decide on which payroll option is best for you and your company, you should know that PEOs are typically for companies that need to enhance their HR functions and use the PEO as a long-term partner. EOR solutions are great for companies looking to expand quickly or keep employees as an expense rather than headcount. EOR solutions are great partners because they can provide you with recruiting and payroll services when you need help to grow your staff. They also have the ability to support onboarding of employees quick and easy. The turnaround time is much faster and tend to benefit companies with high volume.
Looking to work with a payroll provider? Contact us to learn more about how we can help you!