Employer of Record (EOR) and Professional Employer Organization (PEO)— Pros and Cons of Each, Which is Better for You?

Companies that are struggling to manage HR tasks and costs can partner with a Professional Employer Organization (PEO) or Employer of Record (EOR) — services provided by the experts at Pivotal HR Solutions. The question is — which is better for you?

The good news is that choosing between an Employer of Record (EOR) solution and a Professional Employer Organization (PEO) option is the most difficult part of managing fluctuating HR needs — from rapid growth, crisis, pandemic. Since both of these options are solid choices for managing your HR expansion — especially from the point of view of keeping expenses low — companies have two solid options for minimizing complexity as HR teams fluctuate.

Some companies are soon overwhelmed by mission-critical HR tasks like payroll handling, screening, attracting talent, compliance issues, and many others. Also, companies expanding to Canada from a foreign country may benefit from outsourced Pivotal Payroll Solutions such as Employer or Record (EOR). In this feature, we weigh the pros and cons of both solutions.

PEO for Employment Management Services

A PEO provides comprehensive HR services through partnerships with small to medium-sized businesses. In this symbiotic relationship, the Pivotal-managed PEO (Professional Employer Organization) operates as an outsourced HR department. Or, you can opt for Pivotal’s Employer of Record services.

Do you have a question about PEO (Professional Employer Organization) and EOR (Employer of Record)? Our experts can help you decide which is better in your situation. Contact Pivotal today>>

The Concept of Co-Employment

PEOs such as Pivotal’s Employee Management Services operate under the concept of co-employment, which enables them to assume the role of co-employers. As co-employers, PEOs are tasked with more employer-related responsibilities than any other type of HR outsourcing. This B2B contractual arrangement defines and differentiates a PEO from other employment management services.

The concept of co-employment also defines the role of the company partnering with Pivotal PEO (Professional Employer Organization). You retain control over you operations and employee functions, with only HR-related employer responsibilities outsourced to the PEO based on a service agreement. The company’s employees mostly engage with Pivotal PEO in HR-related activities and communications.

Benefits of Using a PEO

Choosing a Pivotal PEO — as opposed to an Employer or Record or EOR — for your employment management service offers several benefits. For starters, a PEO can pool employees from multiple smaller companies and leverage the bargaining power that comes with size to deliver better rates and costs. PEO’s also leverage economies of scale to offer excellent and affordable services.

Since Pivotal PEOs are co-employers, small businesses can benefit by sharing employer risks like employee termination lawsuits with their PEO. This makes a PEO a much better choice than an independent payroll service provider who does not share risk since they are not co-employers.

Partnering with a Pivotal PEO offers overwhelmed companies a quick and cost-effective option to access the expertise and services they lack in-house. Services offered by PEOs vary depending on the client’s needs, service agreement, and customized offerings, but they all fall under payroll processing, benefits administration, recruiting, HR administration, employee training and development, strategic HR planning, compliance assistance, and workers’ compensation.

All these benefits offered by PEOs are the reason behind its ever-increasing popularity.

The Drawbacks of Using a PEO

Choosing a PEO (Professional Employer Organization), versus an EOR (Employer of Record), for your employment management service also has some disadvantages.

• Loss of control over specific decisions, such as changing employees’ benefit providers.
• Some legal liability retained by the company increases legal risks.

If these are concerns, you can avoid these issues by choosing alternative employment management services.

Employer or Record (EOR): The Alternative to a PEO

Pivotal Employer of Record (EOR) is the perfect alternative for companies that do not wish to be tied to a third-party by co-employment arrangement. With EOR, companies have the freedom to decide HR functions to outsource rather than outsourcing their entire HR department. For instance, if the company has recruiting experts in-house, it can outsource the other HR functions without outsourcing recruitment.

Difference between EOR Employer of Record and PEO

While some services offered by EOR and PEO companies overlap, the two are distinctly different when it comes to a partnership model. PEOs are co-employers but an EOR becomes a full legal employer of the company’s employees. In this capacity, an EOR will oversee payroll, taxes, benefits administration, payroll compliance, reporting unemployment claims, and other related tasks.

Benefits of Using EOR (Employer of Record)

If a company seeks to expand across different states or countries, EOR (Employer of Record) is a perfect choice because of the complexity of employment laws and regulations for companies with cross-border operations. Companies that partner with PEOs are required to establish a presence in every state where it has employees because the PEO is not a party to any employment contracts. On the other hand, an EOR (Employer of Record) that is partnered with a company has a contract with its employees. Therefore, companies that have an EOR (Employer or Record) as its partner do not retain responsibilities of co-employment and can engage workers via the EOR without having to establish the required presence in those states.

Before choosing either PEO or EOR, you should analyze their specific needs to determine which of the two is most suitable to meet their needs.  Ask the experts at Pivotal Solutions which is better for your situation.