Understanding The Difference Between EOR And PEO

Understanding The Difference Between EOR And PEO

Paying your employees is a crucial aspect of business management and there are numerous opportunities for mistakes if care is not taken. The IRS has revealed that approximately 40 percent of companies are likely to experience payroll errors that lead to penalties. Many employers lack the time or resources internally to comprehend or manage the intricacy of payroll. This is why most companies will engage the services of a payroll provider to make sure they are in compliance and their employees are paid on time.

Outsourcing payroll services can be challenging for every business owner as there are many services to choose from. There are many companies which provide useful services to outsource or to help in managing the payroll of the company, but what does your company need and what is the difference between these service providers?

Knowing the differences between the payroll providers and services will help to avoid confusion and run your business, and at the same time, take care of the employees. There are two types of services: The two terms that are often used interchangeably are Professional Employer organization (PEO) and Employer of Record (EOR).

A PEO is a company that essentially works with your business to take care of the human resource functions like payroll, benefits, taxes, etc. This is often referred to as co-employment and you, as the business, are legally responsible for all that happens.

Employer of Record or EOR is a concept which is somewhat similar to a payroll service where the employer is not directly responsible for the payment of wages to the employees. An EOR provides most of the services like a PEO, and they become the legal employer of record for the payroll employee. The EOR is responsible for the time and attendance, wages, legal and statutory requirements, benefits, unemployment insurance, worker’s compensation, and so on The EOR takes full responsibility for the employees as they are the legal employer. This is often the case when a company wants to have employees as an ‘overhead’ and not as ‘headcount’ or in a high-growth scenario.

There are a few key items that show the main distinctions between a PEO and EOR. When it comes to insurance, there are two scenarios. If you hire a PEO, you are actually transporting your own insurance and you need to choose to cover under their plan. But with EOR services, your employees are covered under the EOR insurance plan, and the EOR also handles all the other legal requirements on workers comp, healthcare, and other regulations.

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If you choose to work with PEO, you are still required to comply with the state registration statutes and file the registration of your business where you have employees. An EOR will require the company to be registered in every state they employ in and you will not have to incur that cost until you decide to make a state a permanent headquarters and start hiring locally. 

When choosing the best of the two, you should know that PEOs are mostly for companies that require a change in their HR functions and use the PEO as a long-term solution. EOR solutions are especially useful for companies that are growing fast or prefer to have employees on the payroll instead of headcount. EOR solutions are ideal to work with since they can offer you recruitment and payroll services at a time that you require an expansion of your workforce. They also possess the capacity to facilitate the process of onboarding of employees quickly and effectively. It is much faster than the traditional methods and appears to be more suitable for organizations that transact in large numbers.

How FastLane Group Can Help?

If you are seeking to work with a payroll provider, explore FastLane’s expert payroll solutions today! Whether you are aiming for streamlined HR management with a PEO or need the comprehensive support of an EOR, we’ve got you covered. Don’t let payroll complexities slow you down – contact us now to see how we can help your business stay compliant, efficient, and focused on growth. Get in touch with us today!