As a business owner with over two decades of experience running a successful payroll company in Pennsylvania, I’ve seen firsthand how critical it is to choose the right outsourcing partner for your business’s HR and employment needs. Two common options—Professional Employer Organizations (PEOs) and Employer of Record (EOR) services—often confuse business owners. While they might seem similar at first glance, these solutions serve distinct purposes and can have a significant impact on your business operations. Understanding the differences will help you make a more informed decision.

What is a PEO?

A PEO is a co-employment arrangement where your business partners with the PEO to handle HR services such as payroll, employee benefits, compliance support, and risk management. While you retain control of your workforce, the PEO shares certain employer responsibilities and provides access to better benefits, often at reduced costs.

In a PEO model:

• You remain the legal employer.
• The PEO helps manage HR functions like payroll processing, tax filings, and benefit administration.
• This arrangement works best for businesses with permanent employees in the U.S.
• PEOs are especially valuable for businesses looking to grow while staying compliant with complex labor regulations.

What is an EOR?

An EOR takes full legal responsibility for employees, essentially becoming the employer on record. This service is ideal for companies expanding into new markets or hiring employees in foreign countries without needing to set up a local entity.

In an EOR model:

• The EOR is the legal employer of your workers.
• They handle payroll, compliance, tax filings, and employment contracts.
• It’s a common solution for companies with international or remote teams.

Unlike PEOs, EORs are not co-employers. They assume full legal responsibility for compliance, making them ideal for companies with short-term projects, international hiring needs, or businesses testing new markets.

EOR vs. PEO | Key Differences Between PEOs and EORs

Feature	PEO	EOR
Employer Status	Co-employer	EOR is the legal employer
Best for	U.S.-based businesses	International expansion, remote teams
Legal Responsibility	Shared between client and PEO	Full responsibility with EOR
Compliance	Supports compliance for U.S. laws	Ensures local compliance globally

Which One is Right for Your Business?

If you’re a small to mid-sized business operating primarily in the U.S., a PEO might be your best bet. It offers the perfect blend of HR support and cost savings while allowing you to focus on growing your business.

On the other hand, if your company is looking to hire in a different country without establishing a legal entity there, an EOR is the solution. They handle everything from employment contracts to ensuring you meet local tax and labor laws.

My Personal Experience

In my 23 years of running a payroll company, I’ve guided countless businesses through these choices. I’ve seen the incredible benefits of partnering with a PEO to reduce administrative burdens and improve employee satisfaction. However, I’ve also worked with companies expanding internationally, where an EOR was the only practical solution. Each option has its place, and the right choice depends on your business goals and operational needs.

Final Thoughts

Choosing between a PEO and an EOR comes down to understanding your business’s needs, whether they’re domestic or international, long-term or short-term. Both solutions offer tremendous value—but selecting the right one will save you time, money, and potential headaches down the road.

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About the Author

Kelly Pickard is a graduate of the University of Pennsylvania with a Bachelor of Science in Accounting and Finance. She is a writer and editor for PEOcost.com and has owned a successful payroll company in Pennsylvania for 23 years. With deep expertise in payroll, HR, and compliance, Kim helps businesses navigate the complexities of employment solutions with confidence and clarity.