Growing a business comes with its challenges. One of those challenges is hiring the right talents and being on the right side of the law when doing so. Talents are great, especially if they fit into your business. But bad ones can be replaced. On the other hand, legal issues that may arise from hiring talents smear your business, if not run it to the ground.

Some smart business leaders divert the legal risks to a PEO (professional employer organization). Others prefer to work with an Employer of Record (EOR). For first-time business owners that are experiencing rapid growth, these terms can be confusing to figure out.

That’s why I’m writing this article, to highlight the differences between PEO, EOR, GEO, and AOR. At the end of the article, you will have a better understanding of each and how to choose the right one for your business.

What is a PEO?

A Professional Employer Organization (PEO) is a third-party organization that functions as a co-employer of labor in multiple countries and regions. A PEO provides hiring, HR, administration, compliance, and tax expertise to client organizations as it entails to employees’ country or region.

PEOs handles a full range of HR responsibilities without taking complete control over the progress of the client company’s business operations. In some cases, mid-sized businesses try to keep a certain portion of their HR activities in-house while specifying the parts to be handled by the PEO.

PEO’s are providing services to between 156,000 and 180,000 small and midsize businesses.

-Napeo 

With a PEO, small and mid-sized businesses can outsource HR duties, partially or entirely. However, there is a draw-back to using a PEO. When using a PEO, you’re legally obligated to register your company in every country (or jurisdiction) that you want the PEO to hire from.

Because both your company and the PEO are co-employers, both organizations are responsible for the welfare of the employees. As such, obligated to be on the right side of the labor and employment laws in regions where you’re hiring talent from.

Top 3 recommended PEOs

What is an EOR?

EOR meaning, An Employer of Record (EOR) is very similar to a PEO. They perform the same duties as a PEO, including employment, HR, administration, compliance, and taxes. On the flip side, an EOR is not a co-employer. Rather they are the sole legal employer of your talents.

To put this in perspective, an EOR employs talents and borrows them to small and mid-sized businesses as needed. Therefore, an EOR is significantly stronger over your company’s employees but bears 100% of the legal obligations related to labor and employment.

More importantly, working with an EOR doesn’t require you to have your business registered in the countries and regions that they hire from. From the government’s point of view, you’re not an employer of labor in their country. The EOR is.

Top 3 recommended EORs

What is GEO?

There are 2 types of PEO. The domestic PEO that helps companies hire and manage talents within a country or region. The Global PEO has a much broader reach, with access to talents in countries around the world.

A Global Employment Organization is very similar to a Global PEO. It helps growing businesses and enterprises expand their workforce globally.

In 2022 there were estimated to be approximately 3.32 billion people employed worldwide

– Statista 

Most multinationals already have a legal entity in some countries. Therefore, they might not have a need for an Employer of Record (EOR). On the flip side, handling the employment legalities in those countries can be awfully expensive. So, they often work with a GEO to outsource administrative responsibilities, HR, hiring, payrolls, taxations, and more.

While a GEO and Global PEO share so much in common, there is a glaring difference. With PEOs, companies are required to set up a legal entity in the target countries of employment. With a GEO, on the other hand, companies can hire and administer HR duties notwithstanding being legally registered in that country.

Best GEOs for small businesses

What is AOR?

Employment is a tricky endeavor for small businesses. Sometimes, working with independent contractors becomes the smart option to explore. However, you can’t limit your access to independent contractors to your region or country. You can access independent talents from all over the world by working with an Agent of Record (AOR).

Unlike a PEO, GEO or EOR that provide “employment” services, an Agent of Record (AOR) helps businesses engage with independent contractors, agencies, and other companies in countries and regions that are outside the legal jurisdiction of the client company.

An AOR ensures that your contracts with independent contractors are compliant with local laws, the right regulatory documents are rightly filed, and tax withholdings are properly calculated. In the US for instance, figuring out whether to file a W-2 employee and a 1099 worker is one of the duties of an AOR.

Top recommended AORs

Given that most EOR offer AOR services, I’d recommend the same EOR providers mentioned earlier.

PEO, EOR, GEO, and AOR. How to choose the right one for your business.

The distinctions between these 4 types of HR outsourcing companies is thin. Oftentimes, it gets really confusing to figure out which one your business needs. Interestingly, choosing doesn’t need to be that difficult. I’ve highlighted the factors to consider when contemplating your choices.

Your business goals

The goal of business owners is to grow their ventures. However, everyone defines growth differently. Growth could mean higher bottom line, increased social impact, greater governmental influence, or even more employees.

The first step to choosing which type of HR outsourcing to employ (or whether to consider outsourcing HR at all) is to define your business goals and how to accomplish them.

Will saving HR costs help you increase your bottom line? Will relinquishing some control over your workforce and organizational culture hamper your social movement?

Your answer to these questions will determine which of these HR outsourcing solutions to work with. For instance, an EOR assumes full control of your employees, including hiring and termination decisions. A PEO, on the other hand, doesn’t make hiring and termination decisions independently, but can be more expensive to work with than EORs.

Your staffing needs

Your company’s staffing needs is one more factor to consider. Depending on your business model, you may have absolutely no need for an international workforce. Therefore, the services of an EOR may not be ideal.

As a matter of fact, if you’re comfortable keeping your HR administration in-house, you can do so. As long as you’re running a business that requires you to hire locally. Nevertheless, choosing to work with a domestic PEO will lift a lot of HR responsibilities from your shoulders and help you save some money.

On the other hand, if your business could use access to a global talent pool, a domestic PEO wouldn’t be particularly helpful. In this case, you can consider a global PEO (or GEO), an EOR, or AOR, depending on the type of talent you’re engaging with.

Your expansion strategy

International expansion is a big deal for businesses and it comes with a ton of responsibilities and risks. You can choose to share this risk with a global PEO and GEO, or avoid the risks completely by working with an EOR.

While risk aversion may drive you into the arms of EORs, you need to understand that you will be losing major control of your workforce. Remember, they are technically employees of the EOR provider.

Also, during international expansions, some companies may have needs to establish a legal entity and local office in the target country. This is entirely informed by your chosen strategy. If your strategy requires you to have a registered entity in the target country, you may simply work with a global PEO or a domestic PEO domiciled in the target country. With this option, you could enjoy a little more control over employee hiring and termination, at least.

Employee immigration needs

Technology has made remote work seamless. Regardless, the need to help a high-value employee relocate from their country of residence to your headquarters or somewhere they are needed is still a thing.

If you have a need to help employees relocate, you might want to consider working with global PEOs and EORs. These providers are known for assisting with visas and work permits.

However, EOR providers may serve you best if you are looking to help multiple employees immigrate. With employee-country EORs, you don’t run any risks of overusing your business visas or dealing with government scrutiny. Since the talents are employees of EOR –legally, the travels will be a responsibility of the EOR provider.

Company size

Let’s face it. None of these HR outsourcing solutions is a one-size-fits-all solution. For small-sized companies, working with an EOR is a smart choice. Once you grow beyond 15 employees and generate over $100K from the target country, an EOR shouldn’t be among your options.

If you have that many employees and generate that much revenue, you will be putting a majority of your company’s future in the hands of an EOR provider, with a priority that’s rightfully different from yours. Depending on your expansion plan, a PEO or GEO will be a better option in this case.

On the other hand, if your revenue is less than $100K and fewer than 15 employees, you are very unlikely to have any issues working with an EOR.

Costs and budgets

Expansion –local or global– is a costly endeavor. Before you decide on which HR outsourcing solution to consider, you should consider the cost of working with each and set a precise budget for your expansion.

PEOs are the most expensive to consider of all four outsourcing options. PEOs and GEOs charge a certain percentage of the gross employee payment. Also, both PEO and GEO require you to pre-fund employee payments from the beginning of the deal.

EORs, on the other hand, handle the payments pending when you make a payment.

AORs are a more cost-efficient option to consider this case since independent contractors are not entitled to regular employment benefits.

Conclusion

As long as you are operating a functional business model, growth is inevitable. Therefore, you must be prepared to grow. One of the major responsibilities that accompany growth is hiring more talents or working with independent contractors. Given that businesses are benefiting a lot from their access to a global talent pool, you should consider following suit.

Choosing the right option between a PEO, GEO, EOR, and AOR can help lift the burden of hiring and managing employees across borders while you focus on running your business. This article has highlighted the distinction between each option, as well as offered a checklist to help you choose. Feel free to use them.

Keep in mind, also, that businesses have unique needs and none of these HR solutions is one-size-fits-all. Consult your legal advisers to discuss the technicalities of these options. We can also help. Feel free to leave a comment below with your questions and opinions.