When considering the outsourcing of employment services, one often comes across the acronyms EOR and PEO, but there is a fundamental difference between the two. Michael Boaden, Business Development Manager at Swiss employment service provider Accurity, examines the differences.
What does EOR mean?
EOR stands for “Employer of Record”. The term is usually applied to companies that act as the legal employer and then lease (or second) a contractor to another company (the client). The client then owns the day-to-day relationship with the contractor, managing and benefitting from their services.
It clearly separates the responsibility of employer and line- or project manager. It is also popular where the company making use of the contractor’s services, is either too small or inexperienced to be able to take on the employer risk for a group of employees – or simply wishes to be distanced from employer risk. This can be for all kinds of reasons, but it is becoming increasingly popular: as employers are faced with a growing number of compliance issues that get in the way of their critical strategic path – removing employment issues can be seen a major advantage.
EOR Advantages for Employees
For the employee, there can also be advantages to EOR, especially if the employer is not located in the same country as the employee. Cross-border differences in employment law can wreak havoc with the employment relationship and being locally employed gives an employee clearly defined local benefits.
One excellent example of the advantages of this is when Accurity managed to obtain furlough compensation during the Coronavirus crisis for employees regardless of the nationality of the client for whom they worked.
In the UK, so called “Umbrella” Service companies first appeared as EOR’s in the late 1990’s with the goal to protect contractors (who often previously worked through their own limited company’s) from the effect of the UK IR35 tax laws, which continue to be imposed with increased zealousness, still today.
Accurity’s Core Service is EOR
Accurity’s core service is the Employer of Record service. Our flexible model has enabled thousands of contractors and many hundreds of clients in Switzerland and the EU to benefit from this service for over two decades.
What does PEO mean?
PEO stands for “Professional Employer Organization.” A provider of this service does not usually employ workers directly but rather, provides some of the services of the HR department, for example: payroll accounting. Generally, PEO services offered today cover far more, including relocation, training, counselling, diversity management and so on. The employee is directly employed by the client and not leased to them.