PEOs, EORs Represent Different Solutions to Global Expansion

Professional employer organizations, more common in the US, and employers of record, more common internationally, both originated out of employee leasing services allowing employers to more easily comply with employment and tax laws, but the two models have different services and responsibilities, two payroll professionals said May 15.

PEOs agree with an employer to undertake some HR processes, including payroll, benefits, and sometimes hiring and training staff, according to Kira Rubiano, a partner at Payrollminds USA. PEOs can be helpful by allowing small- or medium-sized businesses to offer benefits that might not otherwise be available to them, she said, adding that she used a PEO to offer benefits when starting the presence of a Spanish company in the US with only two other employees.

Employees remain legally employed by the employer, which signs an agreement with the PEO to share responsibility and liability, Rubiano said. Employers must have their own entity and be registered as a business where they intend to work with a PEO, added Max van der Klis-Busink, MCIPP, RPP, the owner of Passion for Payroll. He said the term BPO, for business process outsourcing, can refer to PEOs internationally.

Employers are still responsible for their ultimate relationships with employees when using a PEO, Rubiano said. “If you decide to fire somebody tomorrow, you assume that risk from a labor law perspective; the PEO doesn’t,” she said.

The Internal Revenue Service also operates a certification program for PEOs. Participants in the program are known as certified PEOs or CPEOs, which are generally liable for depositing their clients’ federal employment taxes and filing returns.

Rubiano and van der Klis-Busink spoke at the 2025 Payroll Congress in Kissimmee, Florida.

By contrast to the PEO, when a business uses an employer of record, the EOR becomes the legal employer of the business’s employees in that country, is listed as the employer on employment contracts, and assumes all legal risks around employment, Rubiano said.

A business cannot use an EOR if it already has an entity in a country, and EORs exist to facilitate entry into countries where a business does not have an entity, Rubiano said.

Rubiano noted that using an EOR is not a good way to avoid corporate taxes in a country, because the business should consider the nature of what it does and whether that might create a permanent establishment.

The business retains full control over hiring and terminations with EORs, Rubiano said, cautioning the audience to know national laws about termination and to know what they are doing if they intend to terminate employees themselves. “Never fire anyone unless you know what the process is in that country,” Rubiano said, saying that that could come with high risk for the EOR. Contracts with EORs likely state that the business is partially or entirely liable if the EOR is sued over terminations, she said.

Rubiano also distinguished between direct EORs, which have their own entities in countries where they provide services, and indirect EORs, which use in-country partners. Direct EORs are more expensive because of the costs of running those entities, Rubiano said. “They kind of have a little more skin in the game when they are direct because anything that happens in that country is ultimately their problem and they have to fix it,” she said.

Van der Klis-Busink summarized the difference between an EOR and a PEO, saying an EOR is a PEO, except that it is not the business’s entity.

Global Payroll Models

Businesses operating in multiple countries should design a service delivery model for each country, especially ones where they have fewer employees, and try to combine flexibility and standardization, van der Klis-Busink said. He added that a business would likely process payroll in-house where they have the most employees. He suggested service levels could range from in-house to completely outsourced through business process outsourcing, while the range of providers used could range from “best of breed” in-country partners through EORs and PEOs to complete global payroll control platforms.

Van der Klis-Busink also suggested making a bar graph of the number of employees a company has in each country, calling this a “long tail” because of the shape when the few countries with more employees on the left side of the graph give way to more countries with fewer employees on the right, and using that to help determine how many and which service delivery models to create. His graph of a sample business in 18 countries was divided into two service delivery models, one for the largest four countries and one for the rest.

Both presenters also provided tips for expanding into new countries. Rubiano mentioned that businesses sometimes use EORs to test whether they want to expand to a given new country, while van der Klis-Busink said that some countries allow foreign entities to register only for payroll tax purposes.

“I can hire anywhere,” Rubiano declared. “This quote, I’m sure, makes you have nightmares,” she said. “It’s a very powerful statement, and it’s empowering, but it comes with a lot of complexity.”