Is a PEO just the American version of an employer of record?

Summary

No. An EOR becomes the employer, which is the whole point when you have no entity in the country. With a PEO, your own US company stays the employer and the PEO runs payroll, benefits, and HR administration for it. The IRS does not recognize "co-employment" for federal tax purposes, so unless the PEO is IRS-certified, responsibility for employment taxes generally stays with you.

Do you have an entity?

That question sorts the two faster than any feature list. Remote's support article puts it plainly: with an EOR "you do not need to own your own entity," while "with a PEO or Global Payroll you have to own your entity." An EOR is for hiring in a country where you have nothing. A PEO is for a company that already employs people through a US entity and wants someone else to run the administration.

Remote's pricing page adds a US-specific angle. Its PEO is sold as a way to hire "across the United States without establishing separate legal entities in each state," so a single US company can have staff in California and Texas without registering new companies in either.

The co-employment label and the tax code

PEOs often describe themselves as co-employers. The IRS page on third-party payer arrangements notes that PEOs frequently claim to share control of employees "as a 'co-employer'," then adds: "The Code does not define the term 'co-employer' and the concept is not recognized under federal tax law."

The IRS goes further. "Typically, the client remains the CLE," meaning the common-law employer, "and the PEO is not the Section 3401(d)(1) employer because it does not control the payment of wages." Its guidance to examiners says a client using a PEO "generally" is "not relieved of its employment tax obligation." Even when a PEO asserts it is the employer and files returns under its own EIN, which can make it a designated payer, the client stays subject to the rules that apply to an employer.

Where a certified PEO changes the answer

The exception is a Certified Professional Employer Organization. Certification is voluntary, created by the Tax Increase Prevention Act of 2014, and requires the PEO to meet background, financial reporting, tax compliance, and bonding requirements.

Under a CPEO contract, the CPEO is generally solely liable for employment taxes on pay to work site employees. For non-worksite employees, the IRS says the CPEO and its customer "may both be liable." Each contract's start and end is reported on Form 8973, and the CPEO files aggregate returns under its own EIN. One side effect: customers cannot see the CPEO's federal tax deposits in EFTPS.

You can check a provider's status yourself. The IRS publishes a list of certified CPEOs, updated each quarter, along with separate lists of suspended and revoked ones.

Why the price comparison misleads

On Remote's pricing page, the US PEO starts at $99 per employee per month and the EOR is $699. A separate Remote EOR page quotes $599 on annual billing. Deel lists its US PEO at $125 and its EOR at $599.

The gap is not a discount on the same service. A PEO does not have to provide an employing entity, and an EOR does. So the useful comparison is PEO against PEO and EOR against EOR, and whether you have an entity decides which of the two price lists you should be reading.

Sources

• https://support.remote.com/hc/en-us/articles/4413629551501-What-does-an-employer-of-record-EOR-do
• https://remote.com/pricing
• https://remote.com/services/employer-of-record
• https://www.deel.com/pricing/
• https://www.irs.gov/government-entities/third-party-payer-arrangements-professional-employer-organizations
• https://www.irs.gov/tax-professionals/certified-professional-employer-organization
• https://www.irs.gov/tax-professionals/about-certified-professional-employer-organization
• https://www.irs.gov/tax-professionals/cpeo-customers-what-you-need-to-know
• https://www.irs.gov/tax-professionals/cpeo-public-listings

Related on this site

• What does an employer of record actually take off your hands?
• If you already have a local entity, what does an EOR give you that payroll doesn't?
• What an employer of record charges
• Every payroll vendor and its published price