EOR vs PEO: Key Differences, Costs and Which to Choose

An employer of record (EOR) is the legal employer of your staff in a country where you have no entity: it signs the employment contract, runs local payroll and carries employment compliance. A professional employer organisation (PEO) co-employs staff of a business that already has its own entity, almost always in the US, and takes over payroll, benefits and HR administration.

The practical test is the entity. If you have a registered company where the person will work, a PEO can sit on top of it. If you do not, only an EOR or a new entity of your own puts that person on a compliant local payroll. Our guide to how an employer of record works covers the three-party set-up in detail.

You are. Under a PEO your business stays the common law employer: you hire, set pay, direct the work and decide on terminations. The PEO becomes the payer for tax purposes and usually files payroll returns and issues W-2s under its own EIN.

That split is where most comparison pages go wrong. The IRS says the concept of a “co-employer” is not recognised in federal tax law, and a client of a non-certified PEO generally stays responsible for employment taxes if the PEO fails to pay them (IRS guidance on PEO arrangements). Co-employment describes the service contract. It does not move your tax liability.

Under an EOR the position is different. The EOR is both the contractual and the statutory employer in that country: it holds the local contract, registers with the tax and social security authorities and is the party an inspector or labour court deals with first. You still direct the work. What the EOR does not take is your company’s own tax exposure, so read up on permanent establishment risk before you put senior sellers abroad.

A CPEO is a PEO the IRS has certified under Section 7705 of the tax code. For wages it pays to worksite employees, a CPEO is treated as the only employer for federal employment tax, so that liability moves off your business (Treasury Regulation 31.3511-1).

The IRS publishes its list of certified PEOs. The August 2026 list held about 120 legal entities, which group into roughly 60 brands, according to our sister site’s PEO statistics. Large providers run many entities, so the brand name on the website tells you little.

PEOs answer to states as well as the IRS. Texas, for example, requires a PEO to hold a licence once it has a single co-employed worker in the state, under Labor Code Chapter 91 (Texas Department of Licensing and Regulation). Other states run their own licence or registration schemes, so ask for proof in every state where you have staff.

Not as a PEO. Co-employment is a US arrangement, and a US PEO cannot co-employ someone in Germany or Brazil. When a provider sells a “global PEO” or “international PEO”, it is selling an EOR: its own entity, or a partner’s, employs the person abroad.

So the question to ask is whose entity. Some providers own entities in the countries they sell; others route hires through local partners, which adds a layer between you and the employer. Our EOR provider rankings score entity ownership for exactly this reason.

EORs face their own country rules too. In our research, 29 of 35 countries regulate employee leasing by statute, and 19 of them add a time cap, a role limit or a ban on core activities. These are the ones that change an EOR plan most often.

An EOR costs more per head. Published EOR prices run from $99 to $699 per employee a month, with a median of $429 across the 16 providers that publish a price in our EOR pricing index (October 2026). PEO fees are mostly quote only; NAPEO’s benchmark put them at $1,395 per worksite employee a year, about $116 a month.

The fees pay for different work. An EOR fee covers a foreign entity, local payroll, contracts and compliance in a system you do not know. A PEO fee is administration on top of a payroll your own business already has to run. PEOs charge per employee per month or as a share of payroll, and pass health premiums, workers’ compensation and payroll taxes through on top.

The NAPEO figure comes from its 2019 return on investment study, so treat it as a floor. A newer signal: Insperity reported gross profit of $237 per worksite employee per month in the second quarter of 2026. That is margin above pass-through costs, not a price list, but it shows where large PEOs land.

Neither fee is the largest line. Employer contributions are. Here is one hire in Germany on a $5,000 monthly salary through an EOR at the median fee, using our employer cost by country tool rate of 22.5%.

With a non-certified PEO, a mid-year switch can restart the Social Security and federal unemployment wage bases, because a different EIN becomes the payer. With a CPEO, the regulation treats the CPEO and your business as successor employers, so wages already taxed count towards the annual limits.

This only costs real money for high earners. The 2026 Social Security wage base is $184,500 and rises to $192,300 in 2027 (Social Security Administration). Employer Social Security is 6.2% of wages up to that base.

Yes, and most companies with staff in the US and abroad end up doing exactly that. The PEO covers domestic staff on your own entity; the EOR covers countries where you have none. Several providers sell both, including Justworks and Rippling, so check which legal entity covers each country in your contract.

The third route is your own entity. Our pricing index puts the break-even for a German entity against an EOR at about three employees, assuming the entity runs for three years or more. Our guide on when an entity beats an EOR walks through the setup and running costs.

If your first people abroad are contractors, an EOR is also the usual bridge. See how to convert a contractor to full-time through an EOR.

Decide by where the person works and whether you have an entity there, then by headcount. Price and features come after that.

Ask these in writing. The answers that matter are names, documents and fee amounts, not reassurance.

Short answers to what employers ask most, checked against IRS guidance, Treasury regulations and our own research on 27 October 2026.