Do I need my own entity to use a PEO?

Yes. A PEO co-employs through an entity you already hold, so you must be registered in the country first. No entity and want employees: use an EOR, which provides its own. An AOR has no entity requirement because it engages contractors, not employees.

Can an AOR help me hire employees abroad?

No. An AOR engages contractors without employing anyone. For employees with an existing entity, use a PEO. For employees in a country where you have no entity, use an EOR. Using an AOR for genuine employees is misclassification, and the liability falls on you.

Which model protects me from contractor misclassification?

An AOR takes on the misclassification risk on the contractor side. A PEO is not designed for this, because its workers are employees. Teamed offers Guard (up to $10,000 per case of cover) or Protect (Teamed takes on the liability directly), the AOR-equivalent.

Can I use both a PEO and an AOR at the same time?

Yes. A PEO can handle employees in your home market while an AOR manages contractors elsewhere. The challenge is running two platforms. Teamed handles EOR employment and contractor management on one system, so you can convert as relationships change.

When should I use an EOR instead of a PEO or an AOR?

Use an EOR when you want employees in a country where you have no entity. A PEO needs an entity you already hold, and an AOR is for contractors, not employees. An EOR provides its own entity so you can hire before you incorporate, and helps you graduate to your own entity when scale justifies it.

PEO vs AOR

PEO vs AOR, which model fits your workforce

Q: What is the difference between a PEO and an AOR?

A PEO co-employs your employees through an entity you already hold and handles HR, payroll and benefits. An AOR engages and pays independent contractors without employing them, covering misclassification risk. A PEO is for employees; an AOR is for genuine independent contractors.

A PEO co-employs your people through a legal entity you already hold in the country and handles HR, payroll and benefits admin, so it needs employees and a registered entity. An AOR engages and pays independent contractors on your behalf without employing them. The deciding question is worker classification: a PEO is for employees, an AOR is for genuine contractors. If you want employees in a country where you have no entity, you likely need an EOR.

Get the model recommendation See how contractor management works

Trusted by 1,000+ growing teams

PEO
Co-employs your people through the entity you already hold. Needs employees and a registered presence in the country.: AOR
Engages and pays genuine independent contractors on your behalf, handling compliance and misclassification risk, without employing them.: 4.8
Teamed rated 4.8 on G2. Real HR and legal experts on every plan, and contractor management via Guard and Protect on the same system as EOR employment.

Last reviewed 23 June 2026By Tom Price-Daniel, Co-founder, Teamed

PEO vs AOR: what is the difference and which one do I need?

At a glance

PEO

PEO: employees, your entity

Best for: companies that already have a registered entity in a country, usually their home market, and want to outsource HR, payroll and benefits admin for their employees while staying the co-employer.

AOR

AOR: contractors, no employer relationship

Best for: companies that want to engage genuine independent contractors compliantly, shield themselves from misclassification on the contractor side, and avoid taking on employer obligations.

Shared by both: Payroll and payment handling by the provider · Compliance and contract management support · No new entity setup required of you

Where it matters	Who leads	Why
Needs your own entity in the country	AOR	A PEO requires a legal entity you already hold. An AOR can engage a contractor anywhere without you having an entity there.
Designed for employees with statutory protections	PEO	A PEO co-employs your people under local employment law, so they receive statutory benefits, paid leave and dismissal protections. An AOR deliberately does not employ anyone.
Designed for genuine independent contractors	AOR	An AOR is built for a business-to-business contractor relationship, with compliance and misclassification cover. A PEO is built for employees, not contractors.
Speed to engage flexible or project-based workers	AOR	Engaging a contractor through an AOR is lighter than standing up employment. For short or variable work, that fits.
HR and payroll admin for an established employee base	PEO	A PEO is purpose-built to run HR, payroll and benefits for a company that already employs people and wants the overhead lifted.
Misclassification protection on the contractor side	AOR	An AOR takes on the misclassification risk for the contractor engagement. A PEO is not designed for this, because its workers are employees.
Cross-border reach for multiple new markets	AOR	Most PEOs serve a single country or domestic market. An AOR can engage contractors internationally. For hiring employees across new markets, neither model is right; that is what an EOR is for.
Who is the legal employer	Draw	Under a PEO you remain the co-employer alongside the PEO. Under an AOR there is no employer relationship at all; the contractor is engaged business-to-business. Both are legitimate for their respective workforce types.

PEO on G2

Who PEO is for

Use a PEO when you already have a registered entity in a country, your workers there are employees, and you want to hand HR, payroll and benefits administration to a specialist while keeping the employment relationship. Use an AOR when you have a genuine independent contractor you want to engage compliantly, and you want the misclassification risk handled without taking on employer obligations. The risk in either case is mismatching model to workforce: engaging employees as contractors, or running genuine contractors through a PEO when they'd rather stay independent.

Not the right fit if

Hiring employees in a country where you have no entity. Neither a PEO nor an AOR solves this. If you want to hire an employee in a new country before you incorporate, an EOR is the model that lets you, because it provides its own entity. Teamed is built exactly for that situation.
Not sure if your hire is an employee or a contractor. Classify the working relationship first, using the facts rather than the preferred label. A real HR or legal expert can pressure-test borderline cases before you decide which model to use.

Find your pick in 20 seconds

If you are…	Start with	Why
Employees in a country where you already have an entity	PEO	Co-employ through your existing entity and outsource the HR and payroll admin.
Genuine independent contractors working on defined projects	AOR	Engage them compliantly without an employer relationship, with misclassification cover in place.
Hiring employees in a country where you have no entity	EOR	Neither a PEO nor an AOR enters a new country for you. An EOR provides its own entity and employs your people compliantly.
A mix of employees and contractors across different countries	EOR and AOR on one system	Teamed runs compliant employment (EOR) and contractor management on one platform, so you can match the model to each relationship and convert as it changes.

What is the difference between a PEO and an AOR?

A Professional Employer Organisation (PEO) enters a co-employment arrangement with a company that already has its own registered entity in the country. The PEO administers HR, payroll, benefits and compliance under a shared-employer model, while the client company stays the legal employer and keeps direction and control of the workers. A PEO does not provide an entity; it plugs into the one you already hold. That is why PEOs are most common in a company's home market, where an entity already exists. The workers under a PEO are employees, with the statutory protections, paid leave and contributions that employment law requires.

An Agent of Record (AOR), sometimes called a Contractor of Record, takes a fundamentally different role. It engages and pays independent contractors on your behalf, handles contracts, invoicing and cross-border payments, and shields you from misclassification on the contractor side. An AOR never becomes the employer of the contractor. The relationship stays a genuine business-to-business engagement, so the contractor keeps their independence and you stay out of the employer relationship.

The choice between a PEO and an AOR is not about which is faster or lighter in the abstract. It follows the workforce: a PEO is for employees in a country where you already have an entity; an AOR is for genuine independent contractors, wherever they work. Choosing the wrong model for the working relationship is the risk both were built to prevent. If you want to hire employees in a country where you have no entity at all, neither model answers that; an Employer of Record is the structure that lets you hire before you incorporate.

The workforce each model is built for

This is the single question that routes you correctly. A PEO is for employees: people you direct day to day, who work under local employment contracts with statutory benefits, paid leave and dismissal protections. An AOR is for genuine independent contractors: people who run their own business, serve other clients and control how and when they deliver. Neither model is a substitute for the other. Using a PEO for contractors, or an AOR for employees, is the compliance mistake both were built to prevent.

Detail	PEO	AOR
Who the workers are	Employees of the company, working under local employment law with statutory protections.	Genuine independent contractors who run their own business and control their own work.
Who directs the work	You direct the employees day to day. The PEO holds the HR and payroll admin alongside you.	The contractor controls how and when they deliver. You agree the outcome, not the method.
Statutory benefits and protections	Full statutory benefits, paid leave and employment protections, administered by the PEO.	None by design. A contractor invoices for work delivered and manages their own arrangements.

The substance test

Authorities judge worker classification on the substance of the relationship, not the word on the contract. If you direct someone like an employee but engage them as a contractor, the label does not protect you. Match the model to how the person actually works, and the engagement holds up.

Entity requirement and where each model works

A PEO has one gating requirement: you must already have a registered legal entity in the country. The PEO co-employs your people through it, so it is only available in markets where you are already set up. Most PEOs serve a company in its home market. An AOR has no such requirement. It can engage a contractor anywhere in the world without you holding an entity there, because the contractor is not your employee. If you want to hire employees in a country where you have no entity, neither model helps; that is precisely what an Employer of Record is built for.

Detail	PEO	AOR
Need your own entity	Yes. A PEO cannot operate without an entity you already hold in the country.	No. An AOR can engage contractors wherever they work with no entity of yours required.
Best geography	Your home market or countries where you are already established and registered.	Markets where your contractors work, regardless of whether you have a local presence.
If you want employees in a new country	A PEO cannot help. You need an entity first, or an EOR to provide one.	Not applicable. If you want employees rather than contractors, an AOR is not the right model.

The gap in the middle

When companies ask about PEO vs AOR, they sometimes mean 'how do I hire people abroad without setting up a company?' Neither model answers that directly. A PEO needs your entity; an AOR is for contractors. An Employer of Record is the model designed for hiring employees in a new market before you incorporate.

Liability, compliance and misclassification

The liability picture differs sharply between the two models. Under a PEO, employer obligations are split between you and the PEO under a co-employment agreement, and the precise allocation varies by contract and jurisdiction. You remain the worksite employer and keep direction and control. Under an AOR, there are no employer obligations because the contractor is not your employee. The AOR takes on the misclassification risk on the contractor side, so a tax-authority challenge lands on the AOR rather than on you. Both models carry exposure if used for the wrong workforce type.

Detail	PEO	AOR
Employer obligations	Shared between you and the PEO under the co-employment agreement. You remain the worksite employer.	None. There is no employer relationship. The contractor is engaged business-to-business.
Misclassification exposure	Correctly classified employees carry no misclassification risk. The risk arises only if a PEO is used for someone who is genuinely a contractor.	The AOR takes on the misclassification risk on the contractor side. A good AOR covers a finding rather than leaving it with you.
IRS certified PEO programme	The IRS operates a Certified Professional Employer Organisation programme. A CPEO takes on additional tax-related liability, worth checking for any US-based PEO arrangement.	No equivalent certification exists for AORs. Evaluate the cover terms and provider track record before you sign.

The wrong-model risk

The compliance risk runs in both directions. Engaging employees through an AOR creates misclassification exposure. Running contractors through a PEO pushes their status toward co-employment, which may conflict with their independence. Match the model to the working relationship and the risk stays where it belongs.

Cost, flexibility and what you actually pay

PEOs typically charge either a percentage of total payroll or a per-employee per-month administration fee, on top of the statutory costs they handle. AORs typically charge a per-contractor fee or a percentage of the contractor invoice. Neither model is automatically lower-cost than the other; the right comparison is total outlay including employer contributions, benefits and admin load. Choosing the wrong model to save money on the wrong workforce type is the setup for a misclassification liability that costs far more to resolve.

Detail	PEO	AOR
Typical fee structure	A percentage of total payroll or a per-employee per-month fee, on top of employer contributions and benefits.	A per-contractor fee or a percentage of the contractor invoice. No employer contributions or benefits to add.
What you avoid	The admin overhead of running HR, payroll and benefits for your employees in-house.	Employer obligations, statutory contributions and the misclassification liability on the contractor side.
FX and cross-border costs	Ask the PEO for its FX policy if paying across currencies. An undisclosed spread typically runs in the 1.5 to 3% industry range.	Ask the AOR how it handles multi-currency contractor payments. The same FX question applies; get the policy in writing.

Ask for the all-in cost

For either model, request the full fee schedule in writing including any setup, minimum-term and offboarding terms before you sign. Teamed, as an EOR and contractor manager, charges $599 USD or £479 GBP per employed person per month, flat, with FX absorbed at zero markup and the applied rate shown against mid-market on every invoice.

When you want one system for employees and contractors

Many growing teams have a mix: employees in their home market where a PEO helps, employees abroad in new markets where an EOR is needed, and contractors working independently where an AOR covers compliance. Running those populations on separate platforms fragments the record and makes transitions harder. Teamed handles EOR employment and contractor management on one system, so you can convert a contractor to employment when the relationship deepens without re-onboarding, and your whole workforce sits in one place.

Detail	PEO	AOR
If you need both models	A PEO handles employees in your established markets. A separate provider is needed for new markets (EOR) and contractors (AOR).	An AOR handles contractors. A separate provider is needed for employees (PEO or EOR depending on whether you have an entity).
Converting between models	Moving from a PEO to an EOR for a new country, or from a PEO to direct employment, is a separate migration.	When a contractor effectively becomes a core team member, the AOR engagement should convert to employment. Teamed handles that without re-onboarding.
Where Teamed fits	Teamed is an EOR, not a PEO. For employees in new markets where you have no entity, Teamed provides the entity and employs them compliantly.	Teamed offers Guard and Protect, the AOR-equivalent, on the same system as its EOR work, so employees and contractors sit on one platform.

One platform for both

Relationships change. A contractor starts working like a team member, or a new market moves from a contractor test to a full hire. With EOR and contractor management on one platform, you convert without ripping anything out, and a real HR or legal expert helps you make the call before a tax authority makes it for you.

Why the comparison matters

Behind every line item is a real person, in a real place.

The fee, the FX and the support model are not abstractions. They decide whether the person you hired in Barcelona or Rome is paid right, on time, by someone who knows their employment law. That is the comparison worth running.

What each stakeholder evaluates

Criterion	Legal	Finance	People Ops	Security
Classifying your workforce before choosing a model	Classify every worker by the substance of the relationship before you pick a model. If you direct them like employees, set their hours and integrate them into the team, they are employees. If they control their own delivery, run their own business and serve other clients, they are genuine contractors. The model must match the classification, or both you and the provider are exposed.	A PEO adds employer contributions, benefits costs and an admin fee on top of salary. An AOR adds a management fee on top of the contractor invoice with no employer contributions. Compare total cost against total risk, not just the headline line item.	Employees expect benefits, leave and a payslip. Contractors expect timely payment and clear invoicing. Setting the wrong expectation from day one, then correcting it mid-engagement, is disruptive and creates retention risk.	Worker classification affects IP ownership and confidentiality. Employment assigns IP by default in many jurisdictions; contractor IP must be assigned explicitly in the agreement. Confirm the IP and confidentiality terms before you engage.
Whether you already have an entity in the country	A PEO only works where you already hold a registered entity. If you want to hire employees in a country where you are not registered, a PEO cannot help; you need an EOR to provide the entity. If you want to engage contractors in a new country, an AOR can do that without your entity.	Setting up an entity has fixed costs: registration, a local director where required, bookkeeping and annual filings. An EOR converts those into a predictable per-employee fee until the entity costs pay back. A PEO lifts the admin load but does not remove the entity cost, which is already yours to carry.	In your home market with an existing entity, a PEO is the natural admin partner for your employee base. In a new market where you're testing demand, an EOR covers employees and an AOR covers contractors before you commit to incorporation.	Your own entity gives you direct control over data residency and contracts in that country. An EOR is the faster route in, and a good one helps you graduate to your own entity when scale justifies it.
What happens when the working relationship changes	A contractor who starts working like an employee drifts into misclassification territory, even if nothing in the contract changed. Review engagements periodically. Convert to employment when the substance shifts, before a tax authority reclassifies it.	Converting at the right moment avoids a retrospective liability. Model the cost of employment from the point the relationship changed, not from the date of any finding.	A managed conversion keeps the person and their record intact. Teamed handles contractor-to-employment conversion on the same system with no re-onboarding gap, so neither the worker nor your people team starts from scratch.	Switching models on one platform keeps a continuous, auditable record of the engagement, rather than fragmenting it across separate contractor and employment systems.

How to decide between a PEO and an AOR

The decision follows three questions in order. Answer them and the right model becomes clear, along with whether you need a third option, an EOR, if neither fits.

Step 1
Classify your workers by the facts, not the label
For each person, ask who controls how and when the work is done, whether they serve other clients, and whether the role is ongoing or project-based. If you direct them like an employee, they should be classified as one. If they genuinely run their own business and deliver independently, a contractor engagement fits.
Step 2
Check whether you have an entity in their country
If your workers are employees, a PEO requires a registered legal entity you already hold in their country. If you don't have one, a PEO cannot help; you need an EOR. If your workers are contractors, an AOR can engage them wherever they work with no entity of yours required.
Step 3
Match the model to the workforce
Employees plus your existing entity: a PEO is the lighter fit for HR and payroll admin. Genuine contractors: an AOR handles compliance and misclassification cover. Employees in a country where you have no entity: an EOR provides the entity and employs them compliantly.
Step 4
Plan for the relationship to change
A contractor who effectively becomes a core team member should convert to employment before a tax authority reclassifies them. A good provider handles that conversion without re-onboarding, and flags when the relationship is drifting.

Dyke Yaxley · UK chartered accountancy

Audit capacity doubled. Neither a PEO nor an AOR could do it.

Audit capacity in 2024: +100%
Compliance issues across the engagement: 0
South Africa hires, both retained: 2
Entity setup required: None

Challenge

Dyke Yaxley, a UK chartered accountancy with over a century of history, was turning down audit work in 2024. The firm needed qualified auditors in South Africa, a country where it had no entity. Engaging them as contractors would have raised misclassification questions, because the work was directed, ongoing and embedded in the firm's delivery. A PEO was not an option without a South African entity.

Approach

Dyke Yaxley used the EOR model, employing two qualified audit professionals in South Africa through Teamed. Because the auditors worked under the firm's direction and inside its team, employment was the right classification. Teamed handled the South African employment-law side end to end: compliant contract, local payroll, statutory tax obligations and onboarding. No entity setup, no local counsel on retainer, no misclassification exposure from engaging directed workers as contractors.

Result

Both hires exceeded expectations on technical work, client satisfaction and cultural fit. Audit capacity doubled in 2024. Zero compliance issues across the engagement. The firm went from declining new audit work to confidently taking on additional clients, with the workers correctly classified as employees from day one.

Read the full case study →

Interactive tool

Work out which model your hire needs

Tell us the countries you are hiring in and whether your workers are employees or contractors. A real HR or legal expert sends back which model fits and what it costs, with the misclassification risk flagged. No demo, no commitment.

Get the model recommendation

Decision checklist

Choose a PEO if you already have a registered legal entity in the country, your workers there are employees, and you want to outsource HR, payroll and benefits admin while staying the co-employer.
Choose an AOR if your workers are genuinely independent contractors who control how and when they work, serve other clients and run their own business. An AOR engages them compliantly and takes on the misclassification risk.
Choose an EOR, not a PEO or an AOR, if you want to hire employees in a country where you have no entity. An EOR provides its own entity and employs your people compliantly, with no incorporation required.
If you have both employees and contractors across different countries, look for a provider that handles both models on one system, so you can convert as relationships change without a platform migration.
Whatever model you lean towards, ask for the full fee schedule in writing, confirm the FX policy for any cross-currency payments, and have a real HR or legal expert confirm worker classification before you commit.

Email this to legal

Honest take

When a PEO is the better choice

Choose a PEO if you already have a registered legal entity in the country and want to outsource the HR, payroll and benefits admin for your employees without giving up the employment relationship. A PEO is purpose-built for exactly that.
Choose a PEO if your workforce is concentrated in your home market, where co-employment through your existing entity is the established, lighter structure for your employee base.
Choose a PEO if you want to stay the legal employer and keep direction and control of your people, while handing the compliance and admin overhead to a specialist who knows the local statutory requirements.

A PEO is the right model for companies with employees in a market where they already have an entity and want the admin off their plate. An AOR is the right model for genuinely independent contractors. We would rather give you the honest answer for your situation than push you toward a model that does not fit.

Questions to ask any EOR before you sign

1What deposit or pre-funding do you require, and which setup, offboarding, minimum-term, termination or admin fees are in the contract? Read it line by line before you sign.
2Are my workers employees or genuine independent contractors, and can I show the working facts that support that classification?
3Do I already have a registered legal entity in the country where these workers are based?
4Under the AOR model, who carries the misclassification liability if a tax authority disagrees, and is there a cap?
5Under the PEO model, which obligations sit with me as co-employer and which sit with the PEO?
6Can one provider handle both employment and contractor management, so I can match the model to each relationship?
7If a contractor effectively becomes a core team member, will you flag it and help me convert to employment?
8How does the provider handle a cross-border contractor who works in multiple countries?
9Is the FX policy for payroll and payment conversions transparent, and will you show me the applied rate against the mid-market reference?

Frequently asked questions

What is the difference between a PEO and an AOR?
A PEO (Professional Employer Organisation) co-employs your people through a legal entity you already hold in the country and handles HR, payroll and benefits admin under a shared-employer model. Your workers are employees. An AOR (Agent of Record, sometimes called a Contractor of Record) engages and pays independent contractors on your behalf, shields you from misclassification on the contractor side, and never employs them. The core difference is the workforce: a PEO is for employees, an AOR is for genuine independent contractors.
Do I need my own entity to use a PEO?
Yes. A PEO co-employs through an entity you already hold in the country, so it requires you to be registered there first. If you have no entity and want to hire employees, you need an Employer of Record instead. An EOR provides its own entity, so you can hire compliantly in a new market before you incorporate. An AOR has no entity requirement because it engages contractors rather than employing anyone.
Can an AOR help me hire employees abroad?
No. An AOR engages and pays independent contractors and takes on the misclassification risk on the contractor side. It does not employ anyone. If your workers are employees, you need either a PEO, if you already have an entity in the country, or an EOR, if you do not. Using an AOR to engage genuine employees is misclassification in the other direction, and the liability falls on you.
Which model protects me from contractor misclassification?
An AOR is the model built for that. It takes on the misclassification risk on the contractor side, so a tax-authority challenge lands on the AOR rather than on you. A PEO is not designed for contractor misclassification protection, because its workers are employees. With Teamed, the contractor-management equivalent is Guard, which provides up to $10,000 per case of cover while you remain the engager, or Protect, where Teamed engages the contractor directly and takes on the misclassification liability.
Can I use both a PEO and an AOR at the same time?
Yes, and many growing companies do. A PEO handles the employee base in their home market, where they already have an entity, while an AOR manages contractor engagements elsewhere. The challenge is running two separate platforms and keeping compliant records across both. Teamed handles employment via EOR rather than PEO, and contractor management on one system, so you can convert between models as relationships change without re-onboarding.
When should I use an EOR instead of a PEO or an AOR?
Use an EOR when you want to hire employees in a country where you have no registered entity. A PEO cannot help there because it needs an entity you already hold. An AOR is not the answer because you want an employee, not a contractor. An EOR provides its own entity and becomes the legal employer, so you can hire compliantly in a new market without incorporating. Once you have scaled enough that your own entity makes sense, a good EOR helps you graduate to it.

Common questions

PEO vs AOR: what is the difference and which one do I need?
The difference is the workforce. A PEO co-employs your employees through a legal entity you already hold in the country, administering HR, payroll and benefits under a shared-employer model. An AOR engages and pays independent contractors on your behalf, handles compliance and misclassification cover, without ever employing them. Choose a PEO if you have employees and an existing entity in the country. Choose an AOR if you have genuine independent contractors you want to engage compliantly. If you have employees but no entity in the country, neither model is right; you need an EOR, which provides the entity.
Can a PEO or an AOR help me hire abroad without setting up a company?
Not if you want employees. A PEO co-employs through an entity you must already hold in the country, so it does not solve the entity question. An AOR engages contractors, not employees. If you want to hire employees in a country where you have no entity, an Employer of Record is the model for that. An EOR provides its own in-country entity, employs your workers compliantly and runs payroll, tax and benefits, while you direct the day-to-day work. You can hire in a new market within days, without incorporating.

For the buying committee

Share with your team

Send this page to legal, finance, or HR for review. They will see the same statutory data and source citations you did.

Not sure which model fits your workforce?

Tell us the countries you are hiring in and whether your workers are employees or contractors. A real HR or legal expert sends back which model fits and what it costs. No commitment, no demo.

The honest path

Want the AOR comparison run on your numbers?

Tell us your headcount and where you're hiring. A real HR or legal expert sends back a like-for-like breakdown with the FX shown against mid-market. No demo, no deck.

Get the model recommendation