Professional Employer Organisation (PEO)

How does a PEO co-employment arrangement work?

You and the PEO sign a client service agreement that splits employer duties. You direct your employees' daily work and set their pay. The PEO runs payroll, files employer taxes, manages benefits, and handles HR compliance on your behalf.

Your employees are technically employed by both parties at once. The PEO's name may appear on pay slips and benefits enrolments, but you remain the worksite employer responsible for all business decisions.

Do you need your own company in the country first?

Yes. A PEO model requires you to have a registered legal entity and a local tax ID in the country or state where your employees are based. Without that, the co-employment contract has no legal foundation to build on.

This is the main practical difference from an EOR. An EOR can hire people in countries where you have no entity; a PEO cannot start until your entity is fully registered, which can take several months depending on the jurisdiction.

What is the difference between a PEO and an EOR?

A PEO shares the employer role with you; an EOR becomes the sole legal employer. With a PEO you must already have a local entity; with an EOR you do not. The EOR takes on primary compliance liability; the PEO shares it with your company.

Companies often start with an EOR to hire quickly in a new market, then consider setting up their own entity once headcount justifies it. At that point they may switch to a PEO or self-manage HR entirely.

PEO vs EOR at a glance

Frequently asked questions

• Can a PEO help you hire in a country where you have no legal entity?+

  No. A PEO co-employment model only works where your company already has a registered entity and tax ID. If you want to hire somewhere you are not yet registered, an Employer of Record (EOR) is the arrangement to look at instead.
• Who is responsible if something goes wrong with payroll or compliance under a PEO?+

  Liability is shared between you and the PEO through your client service agreement. The PEO handles payroll and compliance tasks, but you remain a co-employer, so you are not fully insulated from claims the way you would be under an EOR arrangement.
• Can you move from a PEO to managing HR yourself?+

  Yes. Because you already hold the legal entity and employ your own staff as a co-employer, unwinding a PEO relationship is typically straightforward. Your employees' contracts do not need to change employer; you simply take back the HR and payroll functions.
• Is a PEO the same as an Employer of Record?+

  No. A PEO shares employer responsibilities with you through co-employment and requires your own local entity. An EOR becomes the sole legal employer and works in countries where you have no entity at all. They solve different problems at different stages.

Related terms

• Employer of Record (EOR)
• EOR vs PEO
• Co-employment
• Global payroll