About 22.6% of U.S. workers teleworked in March 2026, according to the Bureau of Labor Statistics. When one in five workers can sit anywhere, employers end up hiring in states and countries where they have no office, no tax accounts, and no HR staff. Two services promise to solve that problem: a PEO and an EOR.
They sound alike, but they work in different ways. The main difference is who the legal employer is. This guide explains each model, compares them side by side, shows sample costs, and helps you choose.
What Is the Short Answer?
With a PEO (professional employer organization), you and the PEO share employer duties. This is called co-employment. Your company stays the legal employer, and you must already have a legal entity where your employees work.
With an EOR (employer of record), the EOR becomes the legal employer. It hires the worker on paper, runs payroll, pays taxes, and handles local employment law. You direct the person’s daily work. You do not need your own entity in that location.
The U.S. Chamber of Commerce’s CO- guide puts it the same way: the key difference is the contract structure, since PEOs are co-employers and EORs legally employ your workforce.
What Is a PEO?
A PEO is a company that takes on payroll, benefits, workers’ compensation, HR support, and compliance tasks for your existing employees. You still run your business and manage your team. Your employees still work for you, and your name is on their offer letters.
In many PEO arrangements, the PEO reports wages and pays payroll taxes under its own tax IDs. A Certified PEO (CPEO) goes further. The IRS says a CPEO is generally solely liable for paying the federal employment taxes it reports for worksite employees. You can read the details on the IRS CPEO customers page.
PEOs mostly serve U.S. employers. They fit best when you already have a registered business, know where your team is, and want better benefits and HR help. If you are still deciding whether to use one, read our guide on when a PEO makes sense for your business.
What Is an EOR?
An EOR is a company that becomes the official employer of your workers in a location where you have no entity. The EOR signs the employment contract. It registers with local tax and labor agencies, runs payroll, withholds and pays taxes, provides local benefits, and follows local labor rules on leave, notice periods, and termination.
You choose the person, set the work, and manage performance. The EOR keeps the legal and administrative side in order. Companies use EORs to:
- Hire in a foreign country without opening a local company.
- Hire in a new U.S. state before they are registered there.
- Test a new market with one or two hires.
- Hire quickly, since setup often takes days or weeks instead of months.
Some PEOs and HR providers work with an EOR partner, so you may see the two services offered together.
PEO vs EOR: How Do They Compare Side by Side?
- Legal employer: With a PEO, you remain the legal employer and share duties with the PEO. With an EOR, the EOR is the legal employer.
- Entity needed: A PEO usually needs you to have a registered entity where employees work. An EOR does not.
- Main use: PEOs mostly support domestic U.S. teams. EORs mostly support international hires and new locations.
- Contract: In a PEO setup, the employee works under your name and the PEO’s client service agreement. In an EOR setup, the employment contract lists the EOR.
- Compliance liability: With a PEO, you share liability and keep much of the risk. With an EOR, the EOR takes on most of the local employment law risk, but you are not fully clear of it.
- Control: With a PEO, you keep most policies and decisions, and may use the PEO’s handbook and benefits. With an EOR, the worker follows the EOR’s employment terms, and you direct the work.
- Benefits: PEOs offer pooled group benefits to U.S. employees. EORs provide local benefits that meet the country’s rules.
- Pricing: PEOs charge a percentage of payroll or a flat fee per employee. EORs usually charge a flat monthly fee per employee.
- Speed to hire: An EOR can often start in days or a few weeks. A PEO needs your entity and accounts to be in place first.
- Best for: PEO for a growing U.S. business with entities in place. EOR for hires where you have no entity.
How Do the Costs Compare?
PEO fees are commonly quoted at about $40 to $160 per employee per month, or 2% to 12% of payroll. EOR fees are higher because the EOR carries the legal employer role. Published ranges for 2026 vary by provider. One 2026 comparison puts major EOR fees between $199 and $699 or more per employee per month, and another cites $300 to $600.
Always add the underlying costs. The EOR invoice usually includes salary, employer payroll taxes, benefits, and statutory costs, plus the service fee. Here is an example of the fee alone. Say you hire one employee abroad at an $80,000 salary, and the EOR charges $500 a month. That is $6,000 a year, or 7.5% of salary, on top of the salary and local employer costs.
Now compare that with opening your own entity. Published estimates for entity setup vary widely, from about $15,000 to $100,000 or more depending on the country, and you also pay ongoing accounting, payroll, and legal costs. As a simple example, six EOR employees at $500 a month cost $36,000 a year in fees. If setting up an entity costs $30,000 and ongoing local services cost less than the EOR fees, many companies find a local entity pays off once they have several employees in one country. Run this math with real quotes before you decide.
When Should You Choose a PEO?
A PEO usually makes sense if:
- Your employees work in states where you already have a registered business and tax accounts.
- You want group health and retirement plans that you cannot get on your own.
- You need HR and compliance support, not just a legal home for a hire.
- You are comfortable sharing employer duties and using the PEO’s systems.
A PEO is not built for a solo hire in a country where you do not operate. It does not replace an entity.
When Should You Choose an EOR?
An EOR usually makes sense if:
- You are hiring in another country and have no entity there.
- You are hiring one or a few people in a new U.S. state and do not want to register there yet.
- You want to test a market before you commit.
- You are converting a long-term contractor into an employee and need a compliant way to do it.
- You need to hire fast.
An EOR is usually more expensive per person than a PEO, so it is less attractive when you have many employees in one place.
What Risks Should You Watch For?
- Shared liability with a PEO. Because you remain an employer, you can be named in a claim. Read the contract to see who handles what.
- Residual risk with an EOR. An EOR takes on the local employer role, but your company can still face risk if the person acts like your own employee in a way that creates a tax presence in that country. Ask a tax advisor about permanent establishment rules for each country.
- Misclassification. Do not call someone a contractor when they work like an employee. An EOR can fix this by employing them properly.
- Data and IP. Make sure the EOR contract assigns work product and inventions to your company and explains how personal data is protected.
- Lock-in. Ask about fees to convert an EOR employee to your own entity, and about notice periods to end the contract.
Can You Use Both, or Move From One to the Other?
Yes. Many companies use an EOR to hire the first employees in a new location, then move those people onto their own entity once they have enough headcount. Some U.S. companies use a PEO for their home-state employees and an EOR for a few remote hires elsewhere.
Before you move employees from an EOR to your own entity, check the contract for conversion fees and notice terms. Plan payroll, benefits, and tax accounts before the transfer date so employees see no gap in pay or coverage. If you only need a payroll system for an entity you already have, HR & payroll software or a full-service payroll provider may be enough. You do not always need co-employment.
Financial services firms that already have an entity in each state where they employ people often do not need co-employment. If your main needs are accurate commissions, bonuses, and multi-state tax filing, payroll software for financial services firms can be a lighter option than a PEO or an EOR.
How Do You Choose Between a PEO and an EOR?
Work through this checklist:
- Where will the employees work? List every state and country.
- Do you have an entity and tax accounts there? If yes, a PEO or payroll provider can work. If no, an EOR may be needed.
- How many people will you hire, and for how long? A few people for a short time favors an EOR. A large, long-term team favors your own entity.
- How much control do you need over benefits and policy? More control favors your own entity or a PEO.
- What is the total cost over two years? Compare all fees, taxes, benefits, and setup costs.
Questions to ask any provider:
- Do you use your own legal entities, or a local partner, in each country or state?
- What does the monthly fee include, and what is extra?
- What is the notice period, and what are the fees to end the contract or convert an employee?
- Who owns the intellectual property the employee creates?
- How do you handle termination, severance, and local notice rules?
- Can you show references from clients in the same location?
Also review your own compliance. Our payroll compliance checklist helps you see which tasks you keep, whichever model you choose.
Frequently Asked Questions
Is an EOR the same as a staffing agency?
No. A staffing agency places workers with you for a short term and usually decides who works for you. With an EOR, you pick the person and direct the work, and the EOR is only the legal employer. The worker is not a temporary placement.
Do EOR employees get paid in local currency?
Usually yes. The EOR pays the employee in local currency under local pay rules and invoices you in your currency. Ask how the EOR sets exchange rates and whether it adds a margin.
Can a PEO hire employees in other countries?
Most PEOs focus on U.S. employees. Some offer global services through a partner, but that is often an EOR arrangement. Ask which countries the provider covers directly and which go through a partner.
Can I use an EOR for independent contractors?
An EOR employs people as employees, not contractors. If you have a contractor who works like an employee, an EOR can convert them into a compliant employee. If the person is a true contractor, you do not need an EOR.
What happens to my employees if I end my EOR contract?
That depends on the contract. You may have to transfer them to your own entity, move them to another provider, or end their employment under local law, which can involve notice and severance. Plan the exit before you sign.
Does an EOR remove all of my legal risk?
No. It reduces day-to-day employment risk, but you still control the work, so you can still face risk related to taxes, data, and worker treatment. Use a local advisor to review the setup for each country.
Conclusion
A PEO shares employer duties with you and needs your own registered entity. An EOR becomes the legal employer and lets you hire without one. Choose a PEO for a growing U.S. team that needs benefits and HR help. Choose an EOR for hires in places where you have no entity, or to test a market. Compare the total cost over two years, read the exit terms, and get local tax and legal advice before you hire abroad.
