PEO vs. EOR: Which is Better for Your Business?

HR Solutions • April 23, 2024 • Written by: Ongresso - Business Beyond Borders

What is the difference between PEO, EOR, and HR Services?

If you’re a US company looking to expand and grow your business into Latin America, you’re probably wondering how to handle the HR administration. A few different options are available to you, but usually interested companies search the terms PEO, EOR, and HR services. It is important to know that these terms are often used interchangeably but they have very specific distinctions. PEO and EOR both are a type of HR service.

1. A Professional Employer Organization (PEO) is a US concept:

The PEO offers comprehensive HR services to other businesses such as payroll management, regulatory compliance, benefits optimization and other related functions.
Smaller to mid-size companies hiring a PEO take advantage of access to better employee benefits and specialized expertise in HR services while retaining accountability for their legal and day-to-day operational responsibilities.
In the US, it is essential for the client company to maintain its own distinct legal entity when engaging with a PEO. They PEO in the US acts as a co-employer and shares the legal responsibility with the client company. When this concept crosses borders into other countries, it becomes EOR with some distinctions.

2. An Employer of Record (EOR) is a local entity outside of the US that assumes the role of the sole legal employer for a company's workforce in that region.

Unlike a PEO, an EOR does not necessitate the client company to have its own legal entity.
The Employer of Record is fully legally liable for all HR operations. Therefore it is only logical that an Organization will only take liability for decisions and actions that they can control.
This is why it is not common to hire an EOR service alone. An EOR service is therefore combined with other HR services so that the EOR organizations can manage and be liable for the HR functions that they perform.
The combined services associated with EOR service are payroll, taxes, employee benefits, as well as facilitating agile and compliant hiring processes.
For example, an American company wanting to expand to another country will directly ask a local EOR organization such as Ongresso to handle all HR matters and be the local sole-employer of their workforce to reduce complexity, cost, and avoid legal liability in that country of which its laws are unknown to them (This is called hiring an EOR)

3. In other countries than the US, a company has also the option to set up their own entity but still outsource other HR services:

This way they are in control of their HR functions but also legally liable.
This approach is not called hiring an EOR, but hiring an HR Solution company.
An HR Solution provider usually offers several HR services such as payroll management, recruiting or EOR.

Let's make this visual

When to Use a PEO: When staying in the US

Here are some reasons why you might want to use a PEO, Professional Employer Services:

You’re a small business with grow objectives and don’t have the resources to handle HR in-house.
You have high turnover and need help with compliance.
You’re in a regulated industry and need help staying compliant.
You want comprehensive HR services beyond employment administration, such as ongoing HR support, employee development, and performance management.
You prefer to outsource the entire HR function, including payroll, benefits administration, and compliance.
You want to share employer responsibilities and liabilities with the PEO.
You are looking for a long-term strategic HR partnership.
You are willing to have less direct control over HR processes and policies.

When to Use an EOR: When expanding outside of the US

Here are some reasons why you might want to use an EOR, Employer of Record:

You want to reduce cost by nearshoring HR operations outside of the US
You’re a large business with complex HR needs.
You want to avoid any risk or liability in a legally unknown region.
You want to quickly establish a presence in a new country without the need for legal entity registration.
You primarily need is assistance with legal and administrative aspects of employing talent, such as payroll, taxes, and compliance.
You are looking for a short-term solution for employing workforce in a specific country.

Benefits of Working with Ongresso:

In Latin America, it is customary to establish a company or legal entity before engaging in HR outsourcing. Ongresso, on the other hand, offers customized solutions that fit your particular needs and objectives.

Utilizes local HR knowledge
Effective payroll and benefits management
Adherence to local labor laws
Minimizes administrative work
Avoid local liability with a trusted partner
Eliminates bureaucratic processes and paperwork
No legal entity registration or related expenses

Other related services

Companty or entity formation and set up: Register your own entity to keep control over day to day function
Recruiting: Ongresso can help you recruit your new personell while you maintain the sole employer with all control and liability at the same time.
Payroll Management: Ongresso can reduce your work load and let you focus on your core busiess by managing your payroll activities

Get in touch below to learn about best outsourcing option for your company's needs.