Transition from EOR to PEO: A Step-by-Step Guide
Congratulations! Your international business has hired US employees and begun to grow in the US market. You may have utilized an Employer of Record (EOR) service to navigate the intricacies of those first US hires.
As your US presence, revenue, and headcount grow, you might consider the next step: a Professional Employer Organization (PEO). At Foothold America, experts in hiring model transitions, we understand how the evolution of your HR infrastructure is necessary for ongoing, cost-effective growth. We offer EOR and PEO+ Cross-Border Support™ solutions to empower businesses like yours.
This blog is a comprehensive guide for international companies contemplating moving from an EOR to a PEO for continued successful US expansion. We’ll delve into the key differences between these two models, the factors to consider for a smooth transition, and the benefits a PEO can offer your growing US operation.
EOR vs. PEO: Understanding the US Employment Landscape
Before we delve into definitions and characteristics, it’s important to note that some global payroll providers use EOR and PEO interchangeably. That may be okay from a marketing perspective, but from a practical standpoint, it’s inaccurate and may create confusion for international companies.
Employer of Record (EOR):
An EOR is the legal employer of record for your US workforce. The US Department of Labor (DOL), the US Internal Revenue Service (IRS), and other agencies use the term to reference certain employer obligations. For example, the company’s name appearing on the annual employee income tax document, the W-2, is considered the employer of record.
EOR providers handle payroll processing, tax withholding, and benefits administration, relieving business owners of these organizational burdens. This lets businesses focus on their business, not employee administration and compliance.
Professional Employer Organization (PEO):
A PEO is a cost-effective hiring model that tens of thousands of US employers use. The most significant difference from an EOR is that you must have a US entity, a federal employer identification number (EIN), and a US bank account to use a PEO. For this reason alone, you can see how using the EOR and PEO terms interchangeably is misleading for international businesses.
PEOs and employers enter a co-employment arrangement with employees and share employer responsibilities. The PEO manages payroll, taxes, benefits, and HR tasks while you retain direct control over your employees, including supervision and direction.
Here’s a table summarizing the key differences between EOR and PEO service providers for employers:
Feature
|
EOR
|
PEO
|
Eligibility for international businesses | Must have a business and a business bank account in any country. | Must have a US entity, federal EIN, and a US bank account. |
Employer Relationship | The EOR is the employer of record. The client manages day-to-day activities, trains employees, and assesses performance. | The PEO is the employer of record; the company is the common law employer, managing and directing employee activities. |
Hiring | The EOR makes the formal offer of employment on behalf of the client, who determines the terms of employment within established guidelines. | The employer formally offers employment, but the PEO will override if the employee lacks the right to work in the US. |
Termination | The client determines if termination is necessary with the guidance and offboarding done by the EOR. If mistakes are made, the EOR is responsible. | The employer determines if and when termination is necessary. If mistakes are made, the employer is responsible. |
Control Over Employee Benefits | EORs offer comprehensive employer benefits, but the client may have limited control over plan choices and some contributions. | PEOs offer comprehensive employer benefits through a master agreement. The employer controls contributions and can seek outside benefits if desired. |
Risk & Compliance | The EOR is responsible for risk and compliance. This is a low-risk option for international companies. | The PEO and employer share liability for certain HR and compliance matters. This choice is less risky for international companies than hiring employees directly. |
Scalability | Suitable for initial US hiring and may become cost-prohibitive above ten employees. | Ideal for US expansion when there are plans to hire more than five employees or when a key employee is moving to the US on a business visa. |
EOR vs. PEO: A Checklist for Choosing the Right Partner for Your US Expansion
EOR vs. PEO: A Checklist for Choosing the Right Partner for Your US ExpansionAs you navigate the complexities of US expansion, deciding between an EOR and a PEO can be a strategic choice. Here’s a checklist to help you determine the ideal solution for your specific needs.
Ideal Candidates for EOR Services:
Ideal Candidates for EOR Services:- Limited US Footprint: If you’re starting your US operations with a few employees, an EOR can be a cost-effective and efficient way to get your foot in the door without establishing a legal entity.
- Short-Term Hiring Needs: If you have temporary or project-based hiring needs in the US, an EOR offers a flexible solution for managing payroll and compliance without a long-term commitment without the risk of employee misclassification.
- Fast Onboarding: An EOR allows for quick and easy employee onboarding, as they handle all legal employer responsibilities. This is ideal if you need to get your US team up and running swiftly.
Signs You’re Ready for a PEO:
Signs You’re Ready for a PEO:- Growing US Presence: As your US workforce expands, a PEO can offer greater scalability and cost-efficiency than an EOR.
- Long-Term Commitment: If you envision a long-term future in the US market, a PEO signifies a more profound commitment and allows for a more strategic approach to HR management.
- Compliance Concerns: PEOs share employer liability with you, reducing your company’s exposure to potential compliance issues in US employment law.
- Control over Employee Benefits: If you want to offer a broad range of benefits to compete in the US market and fully manage your contribution strategy, a PEO can accommodate this.
Additional Considerations:
Additional Considerations:- Cost Structure: EORs have lower upfront costs and higher monthly fees. PEOs often include a set-up fee but offer economies of scale for larger workforces, leading to long-term cost savings.
- Control Over HR: With an EOR, you may have to accept the onboarding and offboarding direction from the EOR as, ultimately, they hold the employment risk. In contrast, a PEO offers a co-employment model, giving you more control over your US workforce and requiring more responsibility.
Our team can help you analyze your situation and advise on the best timing for transitioning from an EOR to a PEO for a smooth and cost-effective US expansion.
Factors to Consider when Transitioning from EOR to PEO
Deciding when to move from an EOR to a PEO depends on your circumstances. Here are some key factors to consider:
Growth Trajectory
A PEO can offer greater scalability and cost-efficiency than an EOR if your US workforce steadily expands.
Complexity of Operations
As your US presence matures, you might require more control over employee policies and benefits. A PEO provides this flexibility.
Compliance Concerns
EORs manage nearly all employee-related compliance. When transferring to a PEO, you’ll take on some employer liability and want to be ready for this before transitioning.
Cost Considerations
While EORs typically have lower upfront costs, PEOs may have a setup fee but offer economies of scale for larger workforces that result in long-term savings.
Long-Term Commitment
A PEO signifies a longer-term commitment for your US expansion and generally has a 12-month contract, whereas most EOR services have a one-month notice period.
Our team can help you analyze your situation and determine the optimal time to transition from an EOR to a PEO for smooth and cost-effective US growth.
Creating a Seamless Transition from EOR to PEO
Once you’ve decided to transition to a PEO, a well-planned approach is crucial to ensure minimal disruption for your employees and ongoing operations. Here are some steps to guide your transition:
- Communication is Key: Openly communicate the transition to your US employees. Explain the benefits of a PEO and address any concerns they might have.
- Coordinate with Your EOR and PEO: Work closely with your existing EOR and new PEO providers to seamlessly transfer employee information and payroll records. While few providers offer both services, Foothold America has helped hundreds of international companies transition from EOR to PEO hiring models.
- Benefits Enrollment: A benefit transition is necessary when moving from an EOR to a PEO. Minimizing cost and plan differences will help employees transition comfortably. Part of PEO implementation includes guiding employees through the enrollment process and answering any questions they might have about the new benefits.
- Review and Update Agreements: Carefully review and update any employment agreements with your US employees to reflect the changing employee relationship.
- Timing: To minimize disruption, plan two to three months for complete transition, including advanced notice to employees. Address any questions or concerns promptly to ensure a smooth adjustment.
Navigating Local Laws with Expert Support
Transitioning from an EOR to a PEO requires careful planning and a deep understanding of local laws. Our team of experts is well-versed in US employment regulations and can guide companies of all sizes through this complex process. Whether you’re a startup making your first US hire or a multinational corporation expanding your presence, we ensure your transition complies with all relevant local laws.
Empowering Your HR Team
While an EOR model can be a great starting point, transitioning to a PEO empowers your HR team to take more control over your US operations. This shift allows your HR professionals to focus on strategic initiatives while still receiving support for compliance and administrative tasks. Our PEO+ Cross-Border Support™ acts as an extension of your HR team, providing the expertise needed to navigate the complexities of US employment.
Enhancing Employee Experience During Transition
A smooth transition from an EOR to a PEO can significantly impact your employee experience. We understand the amount of time and effort required to ensure your US workforce feels supported throughout this change. Our dedicated team works closely with your local entities to maintain clear communication and address any concerns, ensuring a positive experience for all involved.
At Foothold America, we understand the importance of a thoughtful transition. Our dedicated team works closely with you and/or your existing EOR to ensure a seamless transfer of employee data and minimize disruption to your operations. Additionally, we can provide ongoing support and guidance during the transition period.
PEO+ Cross-Border Support™: Your Advantage in the US Market
As an international business landing or expanding in the US, a PEO hiring model may be advantageous. It can alleviate many administrative responsibilities of hiring US-based employees while giving you control of policies and benefits.
To help you succeed in the US market, Foothold America designed PEO+ Cross-Border Support™ that provides everything a traditional PEO offers PLUS the additional support international companies need.
Why Choose Foothold America’s PEO+ Over a Traditional PEO?
While traditional PEOs offer significant benefits for US companies, Foothold America’s PEO+ Cross-Border Support™ goes the extra mile to support international businesses expanding and scaling in the US market. Here’s why PEO+ is the more intelligent choice for your US expansion.
- Tailored for International Needs: We understand the unique challenges faced by international companies navigating US employment regulations, tax complexities, and cultural nuances. PEO+ addresses these challenges with specialized support to streamline your onboarding process and ensure compliance.
- Dedicated HR Manager Near You: Our HR & Client Service Managers are located in the UK and Europe for your convenience while our US team supports your US workforce. We become trusted responsive members of your team.
- Reduced Administrative Burden: Beyond the standard PEO services, PEO+ takes care of additional time-consuming tasks like payroll grid management and new state registrations. This allows you to focus your resources on core business activities critical for your US success.
- Cost Optimization: With PEO+, you can rest assured that we leverage our expertise and buying power to negotiate the best rates on benefits, worker’s compensation insurance, and other services. We’ll compare options in the private market to ensure you’re getting the most competitive rates, giving you financial security and confidence in your investment.
- Streamlined Immigration Support: Foothold America assists with the complexities of US work visas, ensuring a smooth onboarding process for your international talent. This is a crucial service not typically offered by traditional PEOs.
- Cultural Integration Guidance: PEO+ understands that building a positive and productive work environment for a diverse workforce is essential. That’s why we offer resources and guidance to help you foster cultural understanding and integration within your US team, making you feel supported and confident in managing your workforce.
- Starting small is okay with us: Many PEOs require a minimum of five employees, making it challenging for international businesses to start their US expansion with a key employee on a business visa. Foothold America has exclusively served international companies since 2015, and we know that with the proper support, mighty businesses can grow from the first foothold.
By transitioning from an EOR to a PEO at the right juncture, you can establish a robust foundation for your long-term growth in the US market. At Foothold America, we understand the unique needs of international businesses expanding into the US. We offer a comprehensive suite of services designed to support your US success..
RESOURCES
FAQ’s
Get answers to all your questions and take the first step towards a US business expansion.
EOR (Employer of Record) services handle employment contracts and local labor laws for companies expanding globally. PEO (Professional Employer Organization) services offer more comprehensive support, including health insurance and administrative tasks, for companies with their own entities in a new country.
Transitioning from EOR to PEO benefits companies by providing more control over team members and employment costs. It allows for better integration of local employment laws and administrative tasks, supporting long-term growth and compliance for businesses of all sizes.
Challenges in transitioning from EOR to PEO include navigating local labor laws, managing employment contracts, and ensuring compliance with health insurance requirements. Companies may also face difficulties in adapting to new administrative tasks and managing direct employees instead of independent contractors.
Before transitioning from EOR to PEO, companies should consider their global expansion plans, team size, and long-term goals. Factors include readiness to handle local employment laws, ability to manage direct employees, and willingness to take on additional administrative tasks and legal responsibilities.
EOR services typically have higher upfront costs but offer flexibility for small businesses entering new countries. PEO services may be more cost-effective in the long run for companies with established entities, as they provide comprehensive support for employment costs and administrative tasks.
Legal considerations for transitioning from EOR to PEO include understanding local labor laws, ensuring compliance with employment contracts, and addressing potential legal issues related to independent contractors. Companies must also consider the implications of becoming direct employers in each new country.
Effective employee onboarding during the EOR to PEO transition involves clear communication about changes in employment status, explaining new health insurance benefits, and providing guidance on local labor laws. Companies should ensure a smooth transfer of employment contracts and administrative responsibilities.
There are several key questions to consider when deciding to make this transition. Factors include the size of your US workforce, your long-term expansion plans, and the level of control you want over HR functions. Our experts can help you assess your specific situation and determine the optimal timing for your business.
An EOR assumes full legal responsibility as the employer of record, while a PEO operates on a co-employment model. With a PEO, your company retains more control but also takes on some employer liabilities. Understanding these differences is crucial for careful planning of your transition.
The amount of time required for transition can vary depending on the complexity of your operations and the number of employees involved. Generally, we recommend allowing 2-3 months for a smooth transition. This timeframe includes preparation, employee communication, and the actual transfer of employment responsibilities.
If you’ve established local entities in the US, transitioning to a PEO can streamline your operations. The PEO can take on many of the administrative burdens associated with employing staff through your US entity, allowing you to focus on growth and strategy. We’ll work closely with your local entities to ensure a seamless integration with the PEO model.
Laurie Spicer
UK Based
Over 25 years experience doing business in North American, European, and Asian markets with a primary focus and specialism on the complexity of the US market.
Lamar Manning
UK Based
Experienced HR professional with over 11 years of experience in driving business growth. Possessing dual US and UK citizenship, Lamar has experience in US HR, payroll and recruitment, bringing a unique perspective and international expertise to his approach.
