Choosing between a Professional Employer Organization (PEO) and an Employer of Record (EOR) can be a complex decision for businesses seeking to optimize HR operations or expand globally. While both provide valuable services, your organization’s specific needs and situation will likely dictate which one is the right choice for you. 

PEOs manage HR functions, and are ideal for established businesses, while EORs handle global employment, which works for businesses planning international expansion into locations they do not have local entities in. 

Read on to understand the key differences between PEOs and EORs, their benefits, and how to decide which option best aligns with your business needs. 

Understanding PEOs 

PEOs are professional employer organizations, which are companies that provide HR for small and medium-sized businesses. PEOs provide a variety of HR services such as:  

  • Employee Benefits Administration 

  • Payroll processing 

  • Employee law and regulatory compliance 

  • Workers’ compensation coverage and claims management 

  • Risk management 

  • Employee onboarding, including background checks and drug screens 

In the United States alone, there are more than 200,000 small and medium-sizes businesses who use PEOs, according to the National Association of PEOs (NAPEO). 

If your business is growing, then so are your HR responsibilities. PEOs allow you to outsource HR tasks and focus on other priorities such as fostering growth and running your business efficiently. 

For more information, check out our complete guide on “What is a PEO?”  

Understanding EORs 

EORs, or employers of record, are companies that help assume the legal responsibility of employing your workers.  

The COVID-19 pandemic saw an increase in remote work, and as much as one-third of workers (35%) with jobs that can be done remotely are working from home all the time. This means businesses are looking to find talent outside of their geographic area, including internationally. 

Companies usually want to expand globally to: 

  • Capture market share 

  • Access the best talent 

  • Diversify investments 

  • Lower costs 

But 50% of businesses say the biggest challenge to setting up payroll in a new country is regulatory and tax requirements—something an EOR sets out to simplify. 

Once you go with an EOR, they become an entity that legally employs staff on behalf of your business. This level of connection means the EOR takes on some responsibility for certain aspects of employment, which includes compliance with local employment laws, onboarding new team members, running payroll, managing benefits, and processing employee contracts. 

A common use case for an EOR is helping a foreign company find local employment. An example would be a company in the United States looking to employ workers in France. The EOR would be based in France, allowing the employees to work locally in their own country. Additionally, the EOR would handle the legal responsibilities of employment in France. Another way to think about an EOR is that they are a tool that lets businesses expand into new markets. 


PEO vs EOR: Key Differences 

The biggest difference between a PEO and an EOR is that a PEO establishes and maintains a “co-employer” relationship with the business, while the EOR becomes a full legal employer of the distributed workforce.  





  • Typically based on number of full-time employees 

  • Potentially higher initial cost, but can provide better engagement and lower turnover to reduce long-term costs 

  • A flat fee per employee or a percent of employee payroll 

  • Lower upfront costs but a larger number of hidden costs 

  • Can be expensive to not comply with the vast varying laws, leading to penalties and fines abroad. 


  • Considered a strategic relationship between the businesses where they each take on specific HR responsibilities 

  • Contractually shares employer responsibilities and liabilities 

  • Allows partner business to maintain certain level of control over HR and personnel decisions 

  • Is considered the full legal employer of the workforce 

  • Assumes all legal  liability for the employees 


  • Offers human resource services such as workers’ compensation, risk management, HRIS systems, payroll processing and tax management, and employee benefits 

  • Provides access to high-quality, cost-effective benefits 


  • Focuses on recruiting, hiring and terminations. 


  • Offers a greater degree of control as employers can still oversee the HR functions 

  • PEOs share the liability with the business 

  • Challenges in navigating international laws 

  • Provides less degree of control of HR functions to the business itself as the EOR handles that in more detail 

  • EORs will reduce liability as they take on the role of the employer 

  • Simplifies compliance with international laws 


A business with established legal entities may benefit more from a PEO, while a company looking to expand into new international markets may find an EOR more suitable.  

The choice can also be determined by how much control you want over your HR functions. Does your company prefer to maintain control and decision-making or are you comfortable with full delegation of HR matters? 

Example Scenarios of a PEO 

  • A small to mid-sized business with a stable workforce may prefer a PEO that can handle HR tasks and allow the business to focus on growth and operations. 

  • A business without a dedicated HR department may prefer a PEO in order to provide essential HR services to their staff without burdening leadership with HR responsibilities. 

Example Scenarios of an EOR 

  • A business planning expansion into a foreign market may have no clue how to stay in compliance with local labor laws. They could look to an EOR to take on responsibility so they can focus on the other duties involved in the expansion. 

  • A company unfamiliar with any compliance risks involved in foreign markets they currently operate in (or are planning to expand into) may prefer an EOR that can ensure compliance is maintained. 

Choosing Between a PEO and an EOR 

Deciding between a PEO and an EOR is a big decision, and you’ll want to consider a few things: 

  • The legal structure of your company 

  • Future expansion plans by geography 

  • The level of HR and employment law compliance support required 

Your choice can also be influenced by future plans your business may have. Typically, a small business will benefit more from the relationship a PEO can provide. If that same small business has immediate plans to expand into new international markets or aims to have a large remote workforce overseas, then an EOR may be more beneficial. 

Examine Your Legal Structure 

As previously stated, a PEO will share employer responsibilities, while an EOR becomes the legal employer of your workforce. 

While a PEO will handle the bulk of HR tasks, your business will remain legally responsible for your employees. This gives a level of control many business owners prefer and is not provided through an EOR. 

An EOR legally becomes the employer of the employees employed by the EOR, which means the EOR must maintain compliance with local labor laws. While this model can be useful for businesses that need to navigate different countries’ legal landscapes, it also means you’ll be giving up some control over your workforce. 

Evaluate Your HR Processes and Support Requirements 

If improving upon or finding additional support for your HR tasks and responsibilities is your end goal, then a PEO is the ideal choice. PEOs can alleviate time-intensive HR tasks and allow you to focus on other areas of your business. By streamlining HR tasks, you should be able to see an increase in employee satisfaction, a reduction in absenteeism, and an increase in productivity. 

EORs can provide a level of specialized assistance and compliance with global regulations. Before deciding that an EOR is for you, you’ll want to factor in the level of regulatory compliance that is necessary for your business to get from point A to point B. In many situations, the broad range services offered from a PEO can cater specifically to a business with growth on the mind.  

Whichever one your business ultimately chooses, make sure their contracts or service agreements describe the exact services you’ll be receiving. 

Need Help Figuring Out Which is Best for Your Business? 

Deciding between a Professional Employer Organization (PEO) and an Employer of Record (EOR) can significantly impact the efficiency and growth of your business. Making the right choice can streamline your HR processes, enhance employee satisfaction, and ultimately contribute to the success of your organization.  

LandrumHR offers expert guidance and support in navigating this crucial decision. With our extensive experience and tailored solutions, we can help you assess your business' unique needs and guide you towards the most suitable HR outsourcing model.  

Reach out to our team to explore how our services can transform your HR operations and propel your business forward.