PEO and EOR are sold side by side, often by the same vendors, and the acronyms hide a simple structural split: with a PEO, your company remains an employer and the vendor joins it as co-employer; with an EOR, the vendor is the only legal employer and your company never appears on the employment contract. Which one you need is almost never a matter of preference. It is decided by geography and corporate structure: where your entity is registered and where your hire lives. This page gives you the test, then walks through what each model takes over, what each costs, and where companies switch from one to the other.
A one-question test
Ask where your legal entity is registered and where the person will work. If both answers are the same country, and for the PEO product that country is in practice the United States, a PEO is available to you: it will co-employ your existing staff, run payroll under its own employer identification number and sponsor benefit plans, while you stay the employer directing the work. If the answers are different countries and you have no entity where the hire lives, a PEO is structurally impossible, because there is no local employer for it to co-employ with. The employer of record product exists for exactly that case: the EOR's local entity issues the employment contract and stands as the sole legal employer.
What each vendor actually does month to month
A PEO's monthly work is administrative depth on an employment relationship you already have: tax filing under the PEO's EIN, benefits administration on plans it sponsors and prices across its client pool, workers' compensation and unemployment insurance handling, and HR compliance support. An EOR's monthly work is the employment relationship itself: a locally compliant contract, payroll in local currency, withholding and filing of the hire's income tax and social contributions, statutory benefits, and carrying the legal employer's obligations under local labour law. With a PEO you are outsourcing administration; with an EOR you are outsourcing the legal fact of being an employer in a country you have not entered.
Cost shapes are different, so compare carefully
PEO pricing is a percentage of payroll, commonly quoted between 2% and 15%, or a flat per-employee monthly fee, and it applies to a domestic payroll you would be running anyway. EOR pricing is nearly always a flat monthly fee per employee, but the invoice adds the entire foreign cost of employment: gross salary, employer social contributions and statutory benefits in the hire's country, which vary enormously between markets. That means a cheap-looking EOR fee can sit on top of a heavy statutory stack, and a PEO percentage that looks small compounds with every raise. The verified pricing table on this site shows what vendors advertise for each product; read each figure against what it does and does not include.
Where companies switch models
The common transitions run in both directions. A US company that grows past the point where a PEO's fees beat in-house HR takes payroll and benefits back inside, or moves to an ASO for administration without co-employment. A company using an EOR in one country tends to open its own entity once headcount there reaches a handful of people, because at that point the monthly fees exceed the cost of incorporating and running local payroll directly, and several vendors sell entity setup as the next product. In every case the controlling documents are the client service agreement and local law; nothing on this page is legal advice, and the numbers that matter are the ones in your specific quote.
Questions people ask about difference between peo and eor
Can I use a PEO and an EOR at the same time?
Yes, and companies do: a PEO for the US workforce employed by their own entity, and an EOR for hires in countries where they have no entity. The two products solve different problems and do not overlap on the same worker.
Which is riskier, PEO or EOR?
They carry different risks rather than more or less. Under a PEO you remain an employer with real compliance exposure and depend on the PEO to remit taxes filed under its EIN, which is what IRS CPEO certification checks. Under an EOR the vendor carries the legal employer duties abroad, and your risk concentrates in classification and the vendor's local compliance quality.
Why do vendors sell both under similar names?
Because the buyer intent overlaps: both products outsource employment administration. But the legal structures differ completely, so check which product a quote actually is; the pricing table on this site labels each verified price by product.
At what point does an EOR stop making sense?
When headcount in one country grows to the point where flat monthly fees exceed the cost of your own entity and local payroll, commonly at a handful of hires in that market. The switch point depends on the country's setup cost and the vendor's fee, not on a universal number.