The Differences Between an Employer of Record and a PEO

When you hire workers who live in other states, you are required to fulfill the legal requirements of each state. Most employers do not have the resources or expertise to handle this. These companies choose to partner with either a professional employer organization (PEO) or employer of record (EOR). Understanding the difference between the two will show you why using an EOR, such as NexusCW, is the more beneficial option.

Compliance

When you hire out-of-state workers, you must comply with that state’s laws and regulations. This includes reviewing proof of worker eligibility and paying taxes in the proper states. Compliance requires you to be familiar with all rules relating to labor and unemployment, document retention and storage, upfront costs and proper forms. Maintaining compliance yourself is a headache and carries the risk of potential IRS fines and legal fees. When you decide to reduce this workload and risk, you will find that hiring an EOR is much more effective than hiring a PEO.

Employment

A PEO becomes your co-employer. You continue to hold all related liabilities and responsibilities. When you hire an EOR, the EOR becomes the legal employer of your workers. The EOR assumes all liabilities and responsibilities for those workers.

Insurance

When you hire a PEO, in addition to carrying your own insurance, you must also opt in to and pay for coverage under the PEO’s policy. When you hire an EOR, your workers are covered under the EOR’s insurance policy. The EOR maintains compliance with all insurance regulations, including healthcare mandates. The EOR offers health insurance to your workers on your behalf.

Employment Contracts

If you hire a PEO, the PEO is not a party to any employment contracts with your employees. You create terms of every employment contract and you remain liable for potential breach of contract claims. When you hire an EOR, you maintain a single service agreement with the EOR. All employment contracts are between the EOR and your workers. Issues arising from employment contracts are handled by the EOR.

Business Registration

With a PEO, you are not relieved of the company registration requirement. You must still register your business in every state where you conduct business or employ residents. However, an EOR is already registered in all states, so you do not have to be.

When you are ready to outsource the work and risk of employment, don’t settle for anything less than an employer of record. Contact the experts at NexusCW today!

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