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Your business is expanding, and you want to hire workers in a new region. Do you need to set up your own entity in that region? Can you work with a PEO and avoid the hassle of setting up a local entity? What about an EOR? What’s the difference, and what’s best for your business?

Is It Possible to use a PEO in a State You Don’t Have Local Entity In?

What is a PEO?

A professional employer organization (PEO) is a type of outsourced human resource service focusing on co-employment. PEOs perform administrative tasks related to HR. You would use a PEO to supplement your HR needs in areas such as:

  • Payroll and tax filing
  • Benefits administration
  • Labor and tax compliance
  • Safety and risk
  • Hiring, training, and performance management

Small businesses outsource their HR needs to a PEO. They can help you stay compliant with the ever-changing rules related to labor and taxes. This type of service has helped countless businesses ensure compliance and become more efficient when handling complicated HR functions.

But what happens when these companies start to scale and cross state lines?

How is a PEO Different from an EOR?

When you’re looking at outsourcing your HR functions, you may hear the terms PEO and EOR intermingled. In fact, these businesses are very different, particularly if your company is trying to expand. One way to illustrate these differences is how you use a PEO and EOR if your company is expanding.

If your business is trying to scale and wants to avoid setting up shop in a new state, a PEO simply won’t work. You must have a local legal entity in place in that state to work with a PEO in a co-employment relationship. An employer of record (EOR) can handle all parts of the employment process, including the risk, without your having to set up a local entity. This is one of the key differences between a PEO and an EOR.

In co-employment, the PEO and your business will share certain employer responsibilities. You may handle employee hiring and termination and still be the employer of record. But the PEO may handle HR and benefits administration. But you are the employer. The PEO will not help you make business or hiring decisions or anything else beyond managing HR.

While both PEOs and EORs manage human resource tasks like benefits, payroll, and taxes, only the EOR is the legal employer of record for your workers in that state. You share the risk and responsibility for hiring in that state with the PEO. To do this, you must have your own state entity set up. You are, however, solely responsible for state labor law compliance when working with a PEO.

If your business is expanding and you want the least hassle, less risk, and lowered costs, working with an EOR is always your best option.

Do You Need an EOR?

FoxHire is an EOR. Our state-of-the-art software, combined with unparalleled processes and expertise help companies scale across state lines without the hassles of establishing a legal entity. Call on us when you’re ready to expand your business.

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