The Differences Between an Employer of Record and a PEO
Studies show that workers that work from home display greater satisfaction and lower stress levels than workers commuting to the company’s offices. Remote employees enjoy the flexibility that remote work offers and often choose to live in different cities or states than their employer.
As technology and culture evolve, there is less need for employees to be in-house as business needs can be met digitally. Though hiring remote employees comes with numerous benefits to both the employee and the employer, hiring workers that do not live where your business is located can present legal complications.
When you hire workers who live in other states, you must fulfill each state’s legal requirements, and unfortunately, most employers do not have the resources or expertise to handle this. These companies can choose to partner with either a professional employer organization (PEO) or employer of record (EOR) to navigate these challenges.
Why Employer of Record Is the Best Option for Your Business
An employer of record is an organization that serves as the employer of an employee for tax purposes while the employee performs work at a different company. The EOR takes on employment tasks and liabilities. Conversely, a professional employer organization takes on an employer’s duties, providing HR services such as payroll, benefits, HR, tax administration, and regulatory compliance assistance. At the same time, the employee simply manages the job description and job duties of the work.
Understanding the differences and benefits will show you why using an EOR, such as InterLoop, is the more beneficial option.
When you hire out-of-state workers, you must comply with that state’s laws and regulations. This includes reviewing proof of worker eligibility and paying taxes in the appropriate states. Compliance requires you to be familiar with all rules relating to labor and unemployment, document retention and storage, upfront costs, and adequate forms. Maintaining compliance yourself is a headache and carries the risk of potential IRS fines and legal fees.
According to the Department of Labor, compliance is the top concern on business owners’ minds. When you decide to reduce this workload and risk, you will find that hiring an employer of record is much more useful than hiring a PEO.
When it comes to employment, a PEO becomes your co-employer. You continue to hold all related liabilities and responsibilities with a few tasks taken off of your desk. When you hire an EOR, the EOR becomes the legal employer of your workers. The EOR assumes all liabilities and obligations for those workers, saving you from potential legal headaches down the road.
When you hire a PEO, in addition to carrying your insurance, you must also opt in to and pay for coverage under the PEO’s policy. In contrast, when you hire an employer of record, your workers are covered under the EOR’s insurance policy. The EOR maintains compliance with all insurance regulations, including healthcare mandates. The EOR offers health insurance to your workers on your behalf.
If you hire a PEO, the PEO is not a party to employees’ employment contracts. You create terms of every employment contract, and you remain liable for potential breach of contract claims. When you hire an EOR, you maintain a single service agreement with the EOR. All employment contracts are between the EOR and your workers. The EOR handles issues arising from employment contracts saving you time and hassle.
Lastly, with a PEO, you are not relieved of the company registration requirement. You must still register your business in every state where you conduct business or employ residents. However, an EOR is already registered in all states, so you do not have to be.
When you are ready to outsource the work and risk of employment, do not settle for anything less than an employer of record. Contact the experts at InterLoop today!