PEO vs EOR: which one do you need to hire your team?

PEO and EOR sound like two versions of the same service, and providers don't help by selling both. They solve different problems. A PEO helps a company that already employs people, usually in the US, run payroll, benefits and HR more easily. An EOR lets a company employ someone in a country where it has no legal presence at all.

Choosing the wrong one wastes money, or simply doesn't work. This guide explains the difference, what each costs and which one fits your situation.

The core difference: co-employment vs sole employment

A PEO co-employs your staff. Your company remains an employer. You need your own entity and EIN, you hire and manage the people, and the PEO shares certain employer responsibilities: running payroll, filing payroll taxes, administering benefits and helping with HR compliance. The employees are on the PEO's benefits plans, which is often the attraction.

An EOR is the sole legal employer. In a country where you have no company, the EOR employs the person through its own local entity, on a local employment contract. It runs payroll, withholds local taxes, provides statutory benefits and handles the paperwork when employment ends. You direct the work day to day, but legally the person works for the EOR.

Side by side

What a PEO does, and costs

A PEO takes over much of the administration of being an employer:

• running payroll and filing federal, state and local payroll taxes,
• giving employees access to its health, dental, vision and retirement plans, often at better rates than a small company could get alone,
• administering workers' compensation, and
• providing HR guidance, policies and compliance help.

Published prices from three providers:

• Justworks: PEO Basic at $79 per employee a month, and PEO Plus, which adds medical, dental and vision administration and other benefits, at $124.
• Remote: US PEO from $99 per employee a month, paid in US dollars, requiring a US bank account.
• Deel: US PEO at $125 per employee a month.

Benefits premiums are paid on top of these fees.

What an EOR does, and costs

An employer of record lets you hire someone in another country without setting up a company there. It handles everything a local employer would:

• a local employment contract that complies with local law,
• payroll in the local currency, with local tax withholding,
• statutory benefits, such as pensions, health contributions and paid leave,
• onboarding and, when needed, lawful termination.

Published prices: Deel and Remote both at $599 per employee a month, with the salary, the employer's statutory contributions and any extra benefits on top. Our comparison of Deel and Remote breaks those down.

Who's liable for payroll taxes?

This is where the IRS's certification program matters. An IRS-certified PEO, called a CPEO, can take on federal employment tax responsibility for its customers. Under the IRS rules, the CPEO is generally solely liable for paying the employment taxes, filing the returns and making the deposits on wages it pays to worksite employees, using its own EIN. There are exceptions, notably for certain non-worksite employees, where the customer can remain liable too.

With a PEO that isn't certified, more of the liability can stay with you. If payroll tax liability matters to you, and it should, ask whether a PEO is certified before you sign.

With an EOR abroad, the EOR is the employer under local law and handles local tax obligations. You still need to watch your own company's tax position in that country, as our guide to employer of record or contractor explains.

When to use a PEO

• You have US employees and want to offer better health insurance than you can buy as a small company.
• You want HR compliance help without hiring an HR person.
• You have employees in several states and want help with each state's rules.

When not to: if you have a few employees, don't need richer benefits and are happy managing HR yourself, ordinary payroll software is far cheaper. Deel and Remote's PEO fees of $99 to $125 per employee compare with about $6 per person on Gusto's Simple payroll plan, plus its $49 monthly base. Our comparison of Gusto, ADP and Rippling covers that route.

When to use an EOR

• You want to hire a full-time employee in a country where you have no company.
• You're testing a new market before committing to a local entity.
• You have a handful of people spread across several countries.

When not to: if the person runs their own business and works on a defined project, a contractor arrangement may fit better. If you have many people in one country, your own local entity eventually becomes cheaper. Our guide to hiring developers in India from a US company works through where that line falls for one common case.

A worked example

A US startup has six employees in two states and wants to hire two engineers abroad. Using published prices:

• The six US employees through a PEO with health benefits administration, at Justworks' PEO Plus price of $124 each, cost $744 a month in PEO fees, plus benefits premiums. On PEO Basic, at $79 each, it's $474.
• The same six on payroll software instead, at Gusto Plus for multi-state payroll, cost $152 a month, with health insurance arranged separately through a broker.
• The two engineers abroad through an EOR cost $1,198 a month in Deel fees, or $1,398 with Remote, plus their salaries and local employer contributions.

The PEO costs roughly $300 to $600 a month more than payroll software for the US team. Whether that's worth it depends on the health plans the PEO can offer compared with what a small company could buy alone, and how much HR help the founders need. The EOR cost, by contrast, buys something that payroll software can't do at all: legal employment abroad.

Why PEO benefits can cost less

Health insurance pricing depends heavily on the size and makeup of the group being insured. A five-person company buying on its own is a small, risky group. A PEO pools the employees of all its client companies into one large group, which can bring better plan choices and sometimes lower premiums. That's often the main reason small companies use a PEO. It isn't guaranteed, though, so compare the PEO's plans and premiums with a quote from a broker before you decide.

Leaving a PEO

You can leave a PEO, but plan the timing. Because your employees are on the PEO's benefit plans, leaving means moving them to new plans, ideally at the start of a plan year so deductibles don't reset mid-year. You'll also need to set up your own payroll and state tax accounts again, if the PEO filed under its own. Ask about notice periods and any exit fees before you sign.

What neither one does for you

A PEO or an EOR takes on the administration of employment, not the management. You still hire, set goals, run reviews, decide on pay and promotions, provide equipment and build the culture. Both make it easier to employ people. Neither makes you a better employer.

Signs you've outgrown an EOR

An EOR charges a fee per person, every month, so it becomes expensive as a team in one country grows. Once you have several people in the same country, plan to stay, and are paying more in EOR fees each year than a local company would cost to run, it's time to price up your own entity there. Setting one up takes months, so start the conversation well before the EOR bill forces it.

Using both

It's common for a growing company to use a PEO for its US employees and an EOR for people abroad, and some providers sell both. Deel and Remote, for example, offer EOR services in many countries and a US PEO. Buying both from one provider can simplify reporting. Buying separately lets you choose the best of each.

Questions to ask before you sign

For a PEO:

1. Are you IRS-certified as a CPEO?
2. Which health plans are available to employees in our states, and at what premiums?
3. What's the total cost per employee, including any administrative fees?
4. What happens to our employees' benefits if we leave?

For an EOR:

1. What's the total monthly cost for this salary in this country?
2. What deposit will you require?
3. What notice and severance apply if the role ends?
4. How long from signed offer to first paid day?

Whichever you choose, the decision follows from one question: do you have your own legal entity where the person will work? If yes, you need payroll or a PEO. If no, you need an EOR or a contractor arrangement.