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Employer of Record vs. PEO: Which Is Right For Your Organization?

Employer of Record

Agile companies need new ways to quickly and compliantly build their distributed workforce. That’s why more and more teams look beyond their surrounding market to find talent across the United States. However, hiring across state lines means businesses must comply with varying local employment laws when providing payroll and benefits—a time-consuming and tedious process.

To ease the burden of managing teams across the U.S., companies turn to U.S. Employer of Record and Domestic Professional Employer Organization (PEO) partners.

Read on to discover how U.S. Employer of Record providers and Domestic PEO providers differ, so you can determine which solution is right for your business.

What Is an Employer of Record?

A U.S. Employer of Record is a company that takes on all employer-related responsibilities for small to large enterprise-sized businesses. The Employer of Record handles state-specific onboarding, payroll, taxes, payroll compliance, benefits administration, unemployment claim reporting, and other HR-related tasks. Businesses use U.S. Employers of Record to easily engage talent in any state without worrying about taking on additional burdens.

Companies that partner with a U.S. Employer of Record should understand the following basic tenets:

  • Full legal employer: An Employer of Record is liable for all employer-related responsibilities—from benefits and payroll to insurance and taxes. Working with an Employer of Record allows you to focus strictly on day-to-day oversight of your workforce.
  • State registration not required: With an Employer of Record partner, your company can expand its talent pool and compliantly recruit talent in any state—without going through the time-consuming business registration process.
  • Compliant, cost-effective benefits: When you bring on talent in new markets, your Employer of Record partner ensures you provide benefits that adhere to local regulations. An Employer of Record pools your talent with workforces from other companies, so you get access to lower-priced group rates from insurance providers.
  • Accommodate many types of talent: An Employer of Record compliantly manages multiple types of talent, including full-time, part-time, seasonal, freelance, and more.
  • Manage teams of any size: Hire teams consisting of anywhere between one to hundreds of employees with an Employer of Record partner.

What is a Professional Employer Organization?

A PEO is a company that partners with small and medium-sized businesses to provide comprehensive Predictive Success, including payroll processing, benefits administration, regulatory compliance, tax filings, and more. A PEO acts as a company’s outsourced HR department so internal teams can focus on their core responsibilities.

Companies must understand the following before they partner with a Domestic PEO provider:

  • Co-employment: When your company partners with a PEO, you are both legal employers of your workforce. However, you remain responsible for the day-to-day oversight of your talent.
  • State registration typically required: Working with a PEO usually means you must register your business in every state in which you hire.  As a result, it makes the most sense to partner with a PEO when you plan to hire in states where you’ve already registered your business.
  • Boosted benefits packages: A PEO helps small and medium-sized businesses provide the same robust employee benefits plans offered by larger companies. Like an Employer of Record, a PEO partner pools your employees with those from other organizations to qualify for more favorable group rates from insurance companies.
  • Permanent employees: Companies typically engage a PEO to co-employ their full-time, permanent workforce. You must seek out other solutions to compliantly pay part-time, freelance, or other flexible talent.
  • Best for large teams: Most PEO firms partner with clients that ask them to co-employ a minimum of 5-10 employees. Companies with smaller teams turn to other distributed workforce solutions.

The critical difference between an Employer of Record and a PEO: An Employer of Record is the full legal employer of a company’s distributed workforce, while a PEO remains a co-employer.

How to Decide Between an Employer of Record and PEO Partner

Companies choosing between a U.S. Employer of Record and Domestic PEO must understand how their needs align with each solution. Businesses that need help hiring full-time, permanent employees in their local area often choose PEO partners. While working with a PEO relieves you of HR-related responsibilities, your company will still be held accountable for both legal and day-to-day operations—including registering your business in states in which you hire.

If your goal is to quickly and compliantly hire top talent no matter where they’re located, partnering with a U.S. Employer of Record gives you the flexibility to easily enter all 50 states—no business registration required. Working with an Employer of Record also gives you peace of mind knowing that experts compliantly handle every HR and employer-related responsibility, so your teams can focus on their core responsibilities. As a result, Employer of Record providers reduce the time, hassle, and cost required to build a distributed workforce across the U.S.

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