Employer of record vs PEO: what are they
What is an EOR
For founders, finding the right talent may mean hiring across different countries. An Employer of Record (EOR) employs these workers on your behalf, so you can hire internationally without setting up a legal entity in every country. However, Singapore has specific work-pass rules, so an EOR cannot apply for a work pass for a foreign employee on behalf of an overseas company.
Essentially, the EOR handles the local employment, while you still manage the employee's tasks. This can include:
- Employment contracts and onboarding
- Payroll and tax administration
- Employee benefits
- Local employment compliance
- Statutory filings and contributions
What is a PEO
In some cases, you may already have a legal entity employing your workforce, but you don't want to deal with every part of the administrative work. A Professional Employer Organization (PEO) works alongside your business to manage some of these HR and employment responsibilities through a co-employment arrangement.
The PEO can support areas such as:
- Payroll administration
- Benefits administration
- Employee records
- HR support
- Employment compliance
Employer of record vs PEO: key differences
Employment structure
The main difference between PEO and EOR is who legally employs the worker. With an EOR, you still manage the employee’s day-to-day activities, but the EOR still acts as the legal employer. On the other hand, a PEO operates through co-employment, where both it and your business are recognised as employers.
Services
Both models handle administrative functions, but their scope defines the difference in employer of record vs PEO. An EOR generally takes care of these as part of its role as the legal employer, while a PEO provides the services your business chooses to outsource.
Cost
When comparing employer of record vs PEO, founders can see that EOR costs depend more heavily on workforce size, whereas PEO pricing depends on the specific services being used. EORs generally charge per employee, either through a fixed per-employee-per-month fee or based on a percentage of the employee’s salary. PEOs base their fees on the HR and employment functions covered by the arrangement.
The table below highlights the main differences between employer of record vs PEO
[Table:1]
When should you choose an employer of record vs PEO
When an EOR makes sense
The best use case for an EOR is when you want to hire a small workforce internationally. This is where the employer of record vs PEO distinction is the clearest. Instead of going through the tedious process of setting up a legal entity just for a few workers, you can outsource the employment process to an EOR and focus on managing your team's actual work. This can be useful when entering a new market, building a small overseas team, or expanding gradually.
When a PEO makes sense
When you already have a local entity but don't want your team handling every administrative task themselves, a PEO lets you hand off specific HR functions. This can be especially useful as your workforce grows and payroll, benefits and compliance start taking up more of your team's time. Instead of building out more internal HR capacity, you can bring in a PEO to manage these functions while you keep your existing employment structure.
Can you use both
You don't have to use the same model for your entire workforce. But when comparing an employer of record vs PEO, you generally wouldn’t use both for the same employees. The most common approach is to use one model for each country, with the setup chosen based on the employment and entity requirements in that country.
However, in some cases, you may want to use both models in the same country for different groups of workers. For example, you might use a PEO for your established tech team while using an EOR for a newer marketing team that you're testing in the market. This allows you to use different employment arrangements for different parts of your workforce based on how established each team is.
Example company structure with employer of record vs PEO
[Table:2]
Can you switch between employer of record vs PEO
As your business changes, your initial structure of employer of record vs PEO may start to become impractical. If your workforce in a country grows enough to justify setting up your own legal entity, you may want to move away from an EOR and consider a PEO or in-house HR instead.
[Table:3]
The reverse can also make sense. If you're scaling down in a country or no longer want to maintain a local entity, you can switch from a PEO or in-house setup to an EOR to take up more employment responsibilities.
[Table:4]
Worked example
Scenario: Imagine an EOR charges SGD $600 per employee per month, while the PEO and other ongoing local costs come to SGD $5000 per month. Setting up the local entity costs SGD $10,000 upfront.
For the first month, the total cost of moving to a PEO would therefore be:
SGD $5000 + SGD $10,000 = SGD $15,000
[Table:5]
Based on the first-month costs, a PEO becomes more cost-effective once the workforce reaches 30 employees.Note: This is an illustrative example. Actual EOR, PEO, and local entity costs may differ depending on the provider and your specific arrangement.
Employer of record vs PEO: which one fits your business
The right choice between employer of record vs PEO depends on more than whether you have an entity or how many employees you have. Founders should also consider the cost, level of HR support, employee benefits, liability and flexibility that each structure provides.
Cost and employment expenses
Compare the total cost rather than just the headline fee. EORs generally charge based on the employees they employ on your behalf, while PEO costs depend on the workforce and functions covered by the arrangement. Factor in payroll, benefits, insurance, entity maintenance, and compliance costs too.
As a founder in Singapore, you need to consider CPF contributions for eligible employees. If you choose an EOR, they will handle the CPF as an employer-side obligation. While under a PEO arrangement, your own Singapore entity remains responsible for them.
Benefits, insurance and employee perks
The benefits available to your employees can also differ. PEOs may give businesses access to group benefits and insurance plans that could otherwise be difficult or expensive to arrange independently. EORs can also provide locally appropriate benefits as part of the employment arrangement, which can make it easier to offer competitive benefits when hiring in another country. When comparing the two, look at the coverage available, the flexibility to customise benefits, and how much they add to your overall employment costs.
HR support and employee management
Think about how much of your HR work you want to hand over. The employer of record vs PEO decision can affect everything from onboarding and payroll to benefits, employee records and offboarding. An EOR generally takes care of these functions as part of the employment arrangement, while a PEO lets you choose which areas you want to hand over.
Compliance, risk and liability
Employment rules can get complicated when you're hiring in a country you're not familiar with. The difference between PEO and EOR also affects how these risks are handled. An EOR generally takes on the employer-side legal obligations, while a PEO shares certain employment-related responsibilities with your business. Consider which setup gives you the right level of support without taking on more compliance risk than you need to.
Technology and scalability
Once you outsource HR, you still need a way to keep track of what is happening across your workforce. When comparing PEO vs EOR, look at whether you can access payroll information, employee records, onboarding details, and reports without having to chase the provider for every update. If you plan to expand, check whether the same system can support employees in new countries and handle a larger workforce.
Which structure offers the right fit?
The difference between PEO and EOR ultimately comes down to what your business needs from the employment arrangement. An EOR is usually the better fit for a small international team, a new market, or a business without a local entity. A PEO is generally better suited to an established workforce where the business already has an entity but wants to hand over parts of its HR administration. For businesses hiring internationally, Aspire's EOR service can help take some of the complexity out of managing local employment requirements and compliance across different markets.
Frequently asked questions
1. What is the key difference between employer of record vs PEO?
The simplest way to look at it is who sits on the employment contract. With an EOR, the EOR is the legal employer while you continue to manage the employee's work. With a PEO, both the PEO and your business are part of the employment relationship through co-employment.
2. Is an EOR more expensive than a PEO?
It depends on how many people you employ and what you're paying for. EOR costs usually increase with each employee, while PEO costs depend on the HR functions covered by the arrangement. For a small overseas team, an EOR may cost less than setting up an entity and bringing in a PEO.
3. Do I need a local entity to use an EOR or PEO?
Usually, you don't need your own local entity to hire through an EOR. A PEO, however, generally works alongside an existing local entity. This is one of the main points to consider when looking at the employer of record vs PEO.
4. Can I switch from an EOR to a PEO?
Yes. If your team grows and you decide to establish a longer-term presence in the country, you may eventually move away from an EOR. Setting up your own entity and moving to a PEO can give you more control over the employment structure while letting you continue to outsource HR functions.
5. Does a PEO provide employee benefits and insurance?
A PEO can give you access to benefits and insurance options, depending on the provider and arrangement. When comparing PEO vs EOR, look at the coverage available, what your employees need, and how the benefits affect your overall employment costs.
6. Who manages employees when using an EOR?
Your company generally continues to manage the employee's day-to-day work, while the EOR handles the employer-side legal and administrative work. This is an important part of understanding the EOR vs PEO distinction.
7. When should you choose an EOR vs PEO?
An EOR generally makes sense when you're hiring a small international team, especially where you don't have a local entity. A PEO may be a better fit when you already have a local workforce and want to hand off some of the HR administration.
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