Professional Employer Organization (PEO) and Employer Of Record (EOR), Similarities and Differences

Introduction

There are a lot of people out there who think that PEO and EOR are the same things. They’re not! In fact, they’re two very different types of companies.

A PEO is a company that provides payroll and HR services to clients (the employees).

These companies often have their own human resources department but may also subcontract with another company or hire an employee at-will contractor who does all the paperwork for them.

A true EOR actually handles all aspects of its employee’s payroll, including calculating deductions from wages, enrolling new hires in traditional plans like 401(k)s or 403(b)s, paying federal taxes on behalf of those employees’ retirement accounts—and even filing W2 forms each year with Uncle Sam himself!

Some PEOs also offer life and disability insurance, but these are typically not included in their basic service package. And there are a lot of companies out there that offer EOR services—so make sure you do your homework before deciding on one!

EOR is a great way to save time and money on payroll. It also allows you to focus on running your business without having to worry about all the paperwork involved in managing employees’ retirement accounts.

Professional Employer Organization(PEO)

A PEO is a third-party service provider that provides HR solutions to small and medium businesses. It’s an independent entity from the client company, meaning it doesn’t take on any employee responsibilities or pay.

The key difference between a PEO and an employer of record is that the former doesn’t have control over who works for your business and it isn’t responsible for paying you or your employees.

The most obvious benefit of using a PEO is cost savings. Since the company will manage your employee benefits and payroll, you don’t have to worry about spending money on expensive software or hiring a full-time HR staff member.

In addition to saving money on employee benefits and payroll costs, PEOs can help businesses avoid legal risks as well. For example, if you are sued for discrimination or sexual harassment, a PEO is responsible for paying any lawsuits against your company rather than your business itself.

Employer Of Record (EOR)

Employer of record (EOR) is a business that helps companies, such as sole proprietorships and corporations, comply with the laws and regulations that apply to their business.

A company can be an EOR if it meets the below criteria:

• 1 It must have a valid tax identification number (TIN).
• 2 It must have been formed under state or federal law within the last three years or will soon be formed under these laws in order to become an EOR.
• Your employer may need time before they’re able to start paying taxes because they don’t yet meet all requirements for being labeled as such by their state government department overseeing compliance programs like those administered by IRS Taxpayer Advocate Service (TAS).
• 3 The organization’s owner(s) must be duly registered with their respective state agencies responsible for issuing such licenses/permits (e.g., occupational licenses),
• Which include relevant information about who owns what percentage interest in the said entity at any given time.
• This includes anything from sole proprietorships through corporations right down through LLCs and whether there are any other entities related directly back up through family memberships etc; if so then what type(s) ?

Similarities

• 1 Both PEOs and EORs are service providers.
• 2 They do not have employees, so they cannot be sued for the same reasons that an employer of record can’t be sued for violating labor laws in California (the state where I live).
• 3 They provide payroll, benefits and HR services to their client companies.
• 4 Both PEOs and EORs are third party administrators (TPA).
• 5 They manage the paperwork and legal compliance for their clients.
• They are not employers of record, but they are responsible for all actions of their clients, including those related to labor laws in California.
• Some companies choose to be their own employer of record and hire a PEO or EOR. Others prefer to outsource the entire HR function, including payroll, benefits and legal compliance.
• If a company hires a third-party administrator (TPA), it relinquishes control over most aspects of its workers’ compensation program.

Differences

• 1 PEOs do not have a physical presence in the state where they are doing business.
• 2 Employers of record (EOR) are businesses with a physical presence in the state where they are doing business, and they are responsible for withholding and paying payroll taxes on behalf of their employees working in that state.
• 3 A PEO can be either an employee leasing company or an independent contractor leasing company; it does not matter which type of company you choose as long as it meets all other eligibility requirements and is approved by the state as a PEO.

4 When you choose a PEO, you will sign an agreement that allows the PEO to be your “employer of record.” This means that any payroll taxes withheld from your employees’ paychecks are paid by the PEO on your behalf.

The PEO will provide you with all of the necessary payroll tax forms and reports, including Form W-2s, Form 1099s, and other documents required by state and federal governments.

In addition to handling your payroll taxes, a PEO can also offer services such as benefits administration, workers’ compensation insurance coverage, unemployment insurance coverage (if required), and human resources support.

If you are a business owner in one of the states that have approved PEOs, it is important that you know how to find and choose a qualified provider.

The first step is to do some research. You can start by searching for “PEO [your state]” on Google or by contacting your state’s Department of Labor or Workforce Solutions office.

Conclusion

• New Entrants to the market of PEO and EOR can get confused between the two terms.

There are a lot of different types of PEOs out there, so it’s important to research the services that each one offers before choosing one. Some companies only offer payroll processing services, while others also offer HR or legal support as well; some even provide IT support for their clients. Once you know what type of service you need most, then it’s time to start comparing providers!

When comparing PEOs, make sure to check out their websites for information about their services and rates. You should also talk with several companies to get a better idea of what types of services each can provide. Once you’ve narrowed your list down to a few finalists, it’s time to ask for references! Check out how satisfied current clients are—and if possible, talk with them directly about their experience using this particular PEO.