A PEO and an employer of record (EOR) solve different employment problems. A PEO is typically used by a business that already employs its workers and wants help with payroll, benefits, HR, workers’ compensation, and related administration. An EOR legally employs workers on the client’s behalf, which can let a company hire in a location where it does not have its own employing entity.
Your managers still run the day-to-day work under either model. The bigger differences are who employs the worker, whether your company needs a local entity, how payroll and benefits are structured, and which employment responsibilities sit with the provider.
PEO vs EOR: the short answer
PEOs use a co-employment model in the PEO industry. Your agreement spells out which responsibilities the PEO handles while your company continues running the business and managing employees. NAPEO describes this as an allocation of employer responsibilities between the PEO and its client.
An EOR is the legal employer for workers covered by the EOR arrangement. The worker signs an employment agreement with the EOR, while the client company manages the person’s day-to-day work. This structure is commonly used when a company wants to hire in a country or other location where it does not have an employing entity.
There is an important federal tax caveat for U.S. PEO arrangements. IRS guidance says that the term “co-employer” is not a federal tax status. A client can remain the common-law employer even when a PEO handles payroll and tax administration. Certified PEOs, or CPEOs, have specific federal employment-tax treatment under the Internal Revenue Code.
PEO vs EOR at a glance
| Factor | PEO | EOR |
|---|---|---|
| Employer structure | PEO industry co-employment model | EOR is the legal employer for covered workers |
| Your own entity | Usually already in place | Often not required in the hiring location |
| Day-to-day management | Client manages the work | Client manages the work |
| Payroll | PEO can process payroll and tax administration | EOR runs payroll as the legal employer |
| Benefits | May provide access to PEO-sponsored or arranged plans | Usually localized to the worker’s market |
| Workers’ comp / insurance | Often part of the PEO service package in the U.S. | Handled according to local law and the EOR arrangement |
| Common use | Broader HR support for an existing workforce | Hiring where the client lacks an employing entity |
| Expansion fit | Often supports multistate U.S. growth | Common for international or new-market hiring |
How the employer relationship differs
A PEO works alongside your existing business
With a PEO, your company keeps operating the business and managing employees. The PEO agreement defines which administrative and employer-related responsibilities the provider takes on. Those services can include payroll, benefits administration, HR support, workers’ compensation, and compliance support.
The exact split varies by contract, provider, and state. If you want a deeper breakdown of who handles what, see our PEO responsibilities guide.
An EOR employs the worker on your behalf
With an EOR, the provider becomes the legal employer for the worker covered by the arrangement. The EOR handles the employment contract and typically takes care of local payroll, required contributions, benefits administration, and employment paperwork.
Your company still directs the person’s actual work. Managers set priorities, oversee performance, and decide how the employee fits into the team. Employment actions with legal consequences, such as contract changes or termination, usually require coordination with the EOR.
How payroll and employment taxes differ
A PEO can run payroll and handle payroll tax administration, but the federal tax consequences depend on the specific third-party payer arrangement. IRS guidance says employers generally remain responsible for employment-tax obligations when payroll duties are outsourced unless a specific rule shifts or shares that responsibility.
CPEOs are a notable exception. For wages covered by a qualifying CPEO contract, the IRS generally treats the CPEO as the employer for federal employment-tax purposes. Our CPEO guide explains that certification and how to verify it.
An EOR normally runs payroll as the worker’s legal employer in the location where the employee is hired. That can include withholding, employer contributions, payslips, and local filings. The exact obligations depend on local law and the EOR’s structure.
How benefits differ
A U.S. PEO may give client companies access to health insurance and other benefits sponsored or arranged through the PEO. Available carriers, plans, eligibility rules, and pricing vary by provider and workforce.
EOR benefits are usually built around the rules and market in the worker’s location. That means a company hiring across several countries may have different statutory and supplementary benefits for different groups of employees.
Who handles compliance and employee decisions?
A PEO can take responsibility for duties assigned in the service agreement and provide compliance support. Your company still has responsibilities tied to the workplace and the decisions its managers make. A PEO relationship does not remove every employer obligation from the client business.
An EOR takes on the formal employer role for covered workers, so it has direct responsibilities for local employment administration. Your managers can still create employment risk through decisions about performance, working conditions, leave, or termination, which is why the EOR’s process matters.
What stays with your managers under either model?
Neither service automatically runs the daily workforce. Your managers usually still need to schedule shifts, track working time, approve time off, communicate with employees, assign work, and maintain accurate records.
For hourly and deskless teams, decide which system is the source of truth for hours, leave, and employee changes. Clean data matters because those records eventually feed payroll, whether a PEO or an EOR runs it.
How PEO and EOR pricing usually works
PEO providers may charge a per-employee fee, a percentage of payroll, or a mix of administrative and insurance-related charges. Benefits, workers’ compensation, implementation, and optional services can affect the total. Our PEO cost and pricing guide covers those pricing models in detail.
EOR providers commonly charge a recurring service fee for each employee, although pricing models vary. Local statutory costs, employer contributions, benefits, deposits, and foreign-exchange charges may sit outside the headline service fee.
Compare the total recurring cost and the cost of leaving the arrangement. Ask about setup charges, deposits, benefit and insurance costs, termination fees, and any charges that increase with payroll.
Which model fits U.S. expansion?
A U.S. business that already has its own employing entity may use a PEO to support payroll, benefits, HR, and other employment administration as it grows across states. State registrations, tax accounts, insurance requirements, and other obligations still need to be mapped carefully.
An EOR can be relevant when a foreign company wants to employ U.S. workers without first setting up its own U.S. employing entity. The exact structure and state-level requirements should be confirmed with the provider and appropriate legal or tax advisers.
Which model fits global hiring?
An EOR is commonly used when you want to hire an employee in a country where your company does not have an employing entity. The EOR signs the local employment agreement and handles the employer-side administration required for that worker. Providers such as Remote describe the EOR, rather than the client, as the legal employer for workers hired through this model.
That makes an EOR particularly useful for testing a new market, hiring a small local team, or entering several countries before creating subsidiaries. It does not mean the EOR runs the employee’s day-to-day work. Your managers still direct the job.
For example, a U.S. business wants to hire its first local manager overseas but isn’t ready to set up a subsidiary. An EOR could handle the local employment arrangement while the business manages the person’s work. If the company later opens several locations and builds a larger team, it may be worth comparing the ongoing EOR fees with the cost of establishing its own entity.
EOR arrangements aren’t available on the same terms everywhere. Some countries impose licensing requirements or limits on how long workers can remain under these arrangements. Using an EOR also doesn’t automatically remove your company’s local tax obligations. Depending on what employees do, their work may create a taxable presence for your business.
A simple way to choose
If you already have an employing entity and want broader payroll, benefits, HR, and employment administration, compare PEOs. If you do not have an employing entity where you want to hire, an EOR can solve that structural problem. If you later establish your own entity, you can reassess whether direct employment plus a PEO or another HR service makes more sense.
The phrase “global PEO” is used inconsistently. Some providers use it for services that operate more like an EOR. Ask one simple question: Which entity will sign the employment contract as the worker’s employer? That answer is more useful than the marketing label.
Can you move from an EOR to a PEO later?
Sometimes. A company may use an EOR for its first hires in a market, then establish an entity once the local team is large enough to justify it. After moving employees to its own entity, the company may choose a PEO or another HR outsourcing model for ongoing support.
Plan for that possibility before signing an EOR agreement. Contracts, benefits, accrued leave, seniority, immigration status, payroll timing, and local transfer rules can affect the transition.
Questions to ask before choosing a PEO or EOR
- Who will be the legal employer under the proposed arrangement?
- Does our company need its own employing entity in each location?
- Which payroll, tax, benefits, insurance, and HR responsibilities will the provider handle?
- Which responsibilities stay with our company and managers?
- How are contract changes, leave, discipline, and termination handled?
- Which system owns time, scheduling, PTO, payroll, and employee data?
- What is the total recurring cost after benefits, statutory costs, insurance, deposits, and add-ons?
- Are there local restrictions on using an EOR, and could our employees’ activities create additional tax obligations for our business?
- What happens to employees and their data if we establish our own entity or change providers?
How Connecteam can fit alongside a PEO or EOR
Connecteam is not a PEO or an EOR. For hourly and deskless teams, it can handle day-to-day workforce processes such as scheduling, time tracking, PTO workflows, communication, forms, tasks, and payroll-ready timesheets while the PEO or EOR handles the services in its agreement.
Before implementation, decide how approved hours and leave data will reach payroll and which system owns each employee record. That avoids duplicate entry and makes payroll errors easier to catch.
Frequently asked questions
No. A PEO typically works with a business that already employs its workforce and uses a co-employment service model. An EOR becomes the legal employer for workers covered by the EOR arrangement.
For the common U.S. PEO model, the client already has the business entity that employs its workforce. International arrangements vary, so confirm the legal structure in each country rather than assuming the U.S. model applies everywhere.
EOR services can be used for U.S. workers, including by foreign businesses that do not yet have their own U.S. employing entity. Confirm the provider’s structure and the requirements in the states where you plan to hire.
The client company normally manages the employee’s daily work, goals, and performance. The EOR handles the formal employment relationship and the employment administration assigned to it.
No universal rule applies. Pricing depends on employee count, payroll, country or state, benefits, insurance, and service scope. Compare complete quotes for the workforce you actually plan to hire.
The bottom line
Use the employment structure as your starting point. A PEO usually fits a business that already employs its people and wants broader HR and employment administration. An EOR is commonly used when another entity needs to employ workers on the company’s behalf.
Once you know which structure fits, compare providers on services, support, technology, contract terms, and total cost. Our guide to choosing a PEO covers the next step if a PEO is the model you need.
