7 Questions to Ask Before Choosing Between a PEO or EOR
Are you curious about the different methods available to employ your U.S. workers? We speak to business leaders daily to help them understand the different options available, and the risks to figure out which option best fits their business model. One of the most common questions we receive is 'Should I use a PEO or EOR?
When deciding between a Professional Employer Organization (PEO) or an Employer of Record (EOR) you must have a solid understanding of your company goals, your timeframe, the risks you are willing to take, and your responsibilities as an employer when you choose one method over the other.
Here are some key questions you need to ask when deciding if a PEO or EOR is best for you
1. Do I need to establish a U.S. entity?
In the U.S. if you want to employ workers directly or use a PEO you must be registered in the state they intend to employ workers in. The registration process is time-consuming and requires ongoing monitoring to ensure compliance with frequent changes to state-level regulations. If you want to avoid the hassle of establishing a U.S. entity, you can use an EOR who will employ your workers for you in any state in the U.S. without requiring you to set up a local entity.
2. Will I be responsible for Workers Compensation insurance?
When employing workers in the U.S. you are required to obtain Workers Compensation (WC) insurance for all your workers, which covers medical expenses and loss of income for employees who are injured on site. If you’re unable to find nationwide coverage, you need to obtain a policy in each state and manage them accordingly.
If you decide to use a PEO, in most cases your workers will be covered by the PEO’s WC insurance. Depending on the set-up, you may still hold liability and be affected after your relationship with the PEO has ended, so this is something you should ask and bear in mind when considering a PEO.
If you use an EOR your workers will be fully covered by the EOR’s WC insurance, this decreases your risk and ensures you remain compliant. It is crucial to have WC insurance, in order to protect your employees but also your business in the event of a lawsuit if a worker is injured when performing their duties. Therefore, this is not a question you want to take lightly and if you are stuck between using a PEO or EOR, you must ask the PEO what their worker’s compensation insurance covers.
3. Am I willing to sign the Employment Agreement (EA) and schedule with the worker?
When you employ workers directly in the U.S. you must sign an employment agreement with them. If you use a PEO, you will be involved in signing the worker's documents with both the PEO and worker as part of a co-employment model. If you use an EOR they are your workers acting employer, meaning they draft the employment and work schedules, so you don't have to. So, an important question to ask yourself is are you willing to draft and sign these agreements with your workers in the U.S.?
4. Will I be responsible for the remittance of taxes/payroll?
In the U.S. you are required to remit taxes when payrolling workers or you may partner with a payroll provider for this. If you use a PEO, they will manage the remittance of taxes. However, in some cases, you will be responsible for remitting taxes yourself. Do you want to hold this responsibility?
An EOR manages all the complex payroll and tax tasks for you, so you don't have to worry or do the maths! They comply with the relevant tax authorities and it is their responsibility to ensure the appropriate taxes are remitted for your workers at the federal, state, and municipal levels.
5. Am I responsible for general insurances and professional liability?
When you employ a worker directly in the U.S. or use a PEO, you are responsible for negotiating your own insurances for your business practices and all the work that your workers are charged with doing. Depending on the EOR you choose, workers may be covered under their insurances. However, you still need insurances in place for your own business practices.
6. Who is responsible for compliance when I employ a worker in the U.S.?
The U.S. employment system is complex, and you must ensure you remain compliant in all processes from paying workers correctly, to dealing with disputes and requests. If you decide to go it alone, you will be required to manage all compliance with federal, state, and city regulations.
When you are deliberating between a PEO and EOR, you should ask them about their compliance processes to ensure you are covered. Some PEOs will add compliance to their service for an extra fee. They often provide guidance on compliance issues but won’t take responsibility for advice.
If you choose an EOR, your workers will be employed in accordance with all U.S. regulations. Many EOR's have in-house legal and compliance teams to keep up with the ever-changing landscape in North America to ensure you are covered in your employment processes.
7. Can I hire short term or hourly workers?
You may want to hire temporary workers due to their flexibility, time, and cost-saving benefits. When deciding between a PEO or EOR, it is important to ask the PEO if they can support temporary workers as most prefer full-time workers as opposed to high volume contract workers. If engaging temporary workers is a crucial aspect of your business, EOR's are often well equipped for hourly workers and have technology and compliance built to mitigate their client's risk.
Final question: PEO or EOR?
We know that employing workers in the U.S. seems daunting, that is why it is critical to ask questions to ensure you partner with the right provider to help you along the way. If you want more advice on how to employ workers in the U.S., get in touch and we will happily talk you through our processes to help you strive in the U.S. market.