What is a PEO and an EOR? Everything you need to know

When it comes to global hiring or employment, businesses that expand into new markets and hire employees in different jurisdictions face a number of challenges, including setting up a legal entity in each country before they can hire employees.

This can be a time-consuming and expensive process, and it can be difficult to manage compliance with local employment laws.

What if I told you that you can hire employees abroad without having to set up a local legal entity? This is where PEOs (Professional Employer Organizations) and EORs (Employer of Record) come into play.

What are PEOs and EORs?

The PEO and EOR models are popular global employment solutions, as they not only expedite the hiring and onboarding processes but also save businesses a significant amount of money.

Both PEOs and EORs are types of business outsourcing solutions that can effectively address your HR needs. But what’s the difference between the two?

What is an EOR?

EOR stands for Employer of Record. An EOR is a company that employs your employees on your behalf. This means that the EOR is the legal employer of your employees on paper, and they are responsible for all of the associated HR responsibilities but not including recruitment services. The EOR provider only comes in once the candidates have been selected and then takes over the legal side of the employment relationship.

How an EOR works

Imagine you’re a business headquartered in Malaysia, eyeing expansion into the Hong Kong market. Along comes Darren, a Hong Kong resident who fits the bill perfectly as your business development manager for Hong Kong. However, your strategy is to delay setting up a local office until you’ve assembled a full team, keeping costs in check.

Here’s where Fastlane HK, an Employer of Record (EOR) service, enters the scene. An EOR empowers you to hire foreign employees without the need for a local legal establishment. So, you enlist Fastlane HK to bring Darren on board on your behalf. On paper, Darren is employed by Fastlane HK in their Hong Kong office, but in reality, he’s an integral part of your team.

Fastlane HK takes care of all HR responsibilities for Darren, including payroll, taxes, and compliance. This allow you to focus on operating your business and expanding your team.

Another scenario in a cross-border M&A carve-out deal is when the buyer does not acquire the legal entity of the target company. The buyer may need to transfer the acquired employees to their own company quickly. An EOR can employ the acquired employees on the buyer’s behalf. This gives the buyer time to establish their own legal entity in the target country and to onboard the orphaned employees into their own company.

What is a PEO?

PEO stands for Professional Employer Organization. A PEO is basically a third-party HR company that takes over all of your HR responsibilities, such as payroll, benefits, compliance and including recruitment services.PEOs are also known as co-employers, as they share some of the responsibilities of being an employer with the client company.The main distinguishing feature of a PEO is that they provide recruitment services. This means that PEOs can help you find and hire the best candidates for your open positions. 

How a PEO works

Imagine you’re a Hong Kong company that’s setting up or has already set up legal entities in Malaysia. As you navigate the Malaysian market, you realize the need for local HR support to handle critical functions like recruitment, onboarding, payroll, benefits, compliance, and other essential HR tasks.

This is where Fastlane MY comes in. Fastlane MY is a Professional Employer Organization (PEO) service provider that offers full-service human resource outsourcing. Fastlane MY acts as your co-employer and will take care of recruitment, onboarding, payroll, benefits, compliance, and more. This allows you to focus on growing your business in Malaysia without having to worry about the complexities of HR management.

Benefits of using a PEO and EOR

Quick and easy hiring: PEOs and EORs can help you hire employees in a new market quickly and easily, without the need to set up a local legal entity. This can be a major benefit for businesses that are expanding into new markets or that need to hire employees quickly to meet demand.

Compliance: PEOs and EORs ensure that you are compliant with all applicable employment laws in the new market. This can be a complex and time-consuming task, but PEOs and EORs have the expertise and resources to do it correctly.

Cost-effective: PEOs and EORs can be a cost-effective way to hire employees in a new market, as they take care of all of the HR responsibilities.

So, which one is right for you? It depends on your specific needs and circumstances.

Which is right for you?

If you’re a business with limited HR resources and do not have a legal entity in the target country, an EOR may be a better choice for you, especially if you already know who you want to hire. EORs (Employer of Record) can help you hire employees in markets where you have no legal presence, such as a representative office, a branch office, or a subsidiary. EORs can offer a range of services, including payroll, benefits, compliance, and recruitment. They can also take on the role of employer for your employees, which can save you time and hassle.

If you’re looking to hire employees in a new market for the long term and you don’t yet have candidates, a PEO may be a good option. PEOs (Professional Employer Organizations) can help you find, hire, and onboard qualified employees in the target market. They can also take care of payroll, benefits, compliance, and other HR tasks. 

Want to learn more about our global employment services? Book a free consultation with our team today!

The information on this page is not legal advice and should not be relied upon as such.