On this page (13 sections)
The one-sentence answer
An Employer of Record (EOR) is the sole legal employer of your staff, so you don't need a company in that country. A professional employer organisation (PEO) co-employs your staff alongside your own local company, sharing HR and payroll tasks.
Everything else follows from that difference.
What a PEO does
A PEO is an outsourcing arrangement that grew up in the United States. A business with its own US entity signs a co-employment agreement with the PEO. The PEO then takes on certain employer functions, typically:
- Running payroll and filing employment taxes, often under the PEO's tax registrations.
- Providing access to health insurance, retirement plans and other benefits at group rates.
- Administering workers' compensation.
- Supporting HR policy and compliance.
The client remains an employer. It hires, directs, manages and dismisses staff, and it remains responsible for many legal obligations. The PEO is responsible for the functions it has agreed to perform. In the US, the IRS runs a certification programme for PEOs that take on federal employment tax liability.
What an EOR does
An EOR becomes the only legal employer of your worker in a given country. It:
- Signs the employment contract with the worker.
- Runs payroll, withholds tax and pays social security or superannuation.
- Holds the required registrations and insurance.
- Ensures compliance with local employment law, including leave and termination rules.
Your company directs the work but is not the employer, and does not need a registered presence in the country to hire. That is what makes the EOR model useful for international expansion.
Side-by-side comparison
| Question | Employer of Record | PEO |
|---|---|---|
| Who is the legal employer? | The EOR only | Your company and the PEO (co-employment) |
| Do you need a local entity? | No | Yes |
| Typical use | Hiring in countries where you have no entity | Outsourcing HR and benefits where you already have an entity |
| Who signs the employment contract? | The EOR | Usually your company, with PEO terms |
| Who holds payroll registrations? | The EOR | Often the PEO, sometimes your company |
| Compliance risk | Mostly with the EOR | Shared, with significant risk staying with you |
| Speed to first hire | Fast | Fast once your entity exists |
| Typical cost basis | Per employee fee or percentage of salary | Per employee fee or percentage of payroll |
| Common markets | Global | Mainly the United States |
How the terms are used in Australia
In Australia, "PEO" is less common as a legal concept than in the US. You will see several overlapping terms:
- Employer of Record. The provider employs the worker and supplies their services to you. This is the model most international expansion providers use for Australia.
- Labour hire. A provider supplies its own workers to work in a client's business. Some Australian states, including Victoria, Queensland and South Australia, require labour hire providers to hold a licence. Whether an EOR arrangement falls within a state's definition depends on the facts, so ask providers how they comply.
- Payroll outsourcing. Your company remains the employer and a provider simply runs payroll for you. This needs your own Australian entity or registered foreign company.
- HR outsourcing. Advice and administration services for an employer, without any change to who the employer is.
When an EOR is the better fit
- You have no entity in the country. This is the deciding factor in most international hiring.
- You are hiring a small number of people. One to ten employees in a country rarely justifies setting up and maintaining an entity.
- You want to move quickly. Entity registration, bank accounts and payroll registrations can take weeks or months.
- You want to limit your direct legal exposure while you test a market.
When a PEO or direct employment is the better fit
- You already have a local entity. If you have an Australian company, you can employ directly. A PEO-style or payroll outsourcing service can then reduce the admin.
- You have a larger team. Per-employee EOR fees become expensive compared with running your own payroll as headcount grows.
- You want full control of contracts, policies and benefits.
- You need to trade locally and want employees on the same entity that signs customer contracts.
Costs compared
Both models usually charge per employee per month, or a percentage of payroll. EOR fees tend to be higher per head because the provider carries more legal risk and maintains entities and registrations in each country. A PEO or payroll provider can be cheaper per head, but only once you have paid to set up and run your own entity: company registration, accounting, tax filings, a registered office, insurance and directors' time. See EOR costs and pricing models explained.
A typical growth path
Many companies use both models at different stages:
- Exploration. Hire the first one to three people through an EOR to test the market.
- Commitment. Revenue and headcount grow, so the company registers a local entity.
- Transition. Employees move from the EOR to the new entity. This needs careful handling of continuity of service, accrued leave and contract terms.
- Scale. The entity employs directly, sometimes with outsourced payroll or HR support.
Planning step 3 from the start makes the transition much smoother. Ask your EOR at the outset how it handles transfers, whether it charges a conversion fee and what notice it needs.
Questions to ask any provider
- Which legal entity will employ my staff, and where is it registered?
- Will my company be a co-employer at any point?
- Who is registered as the employer for tax, superannuation and workers' compensation?
- Do you hold any labour hire licences needed in the states where my staff will work?
- How is intellectual property assigned to my company?
- What happens to employees if I end the service agreement?
The bottom line
If you don't have a company in the country, you are looking at an EOR, whatever the provider calls itself. If you do have a company and want help with HR and payroll, you are looking at a PEO, payroll outsourcing or HR services. For Australian expansion, see also EOR vs setting up an Australian entity.
Frequently asked questions
Is a PEO the same as an EOR?
No. Under a PEO model your own registered company remains an employer and the PEO shares HR and payroll responsibilities. Under an EOR model the provider is the only legal employer, so you don't need a local company at all.
Do PEOs exist in Australia?
The term "PEO" is mostly used in the United States, where co-employment is a recognised structure in many states. In Australia, similar outsourced services are usually described as payroll outsourcing, HR outsourcing or labour hire, depending on who employs the worker.
Which is cheaper, an EOR or a PEO?
PEO fees are often lower per employee because the client has its own entity and carries more of the compliance burden. But you also pay the cost of setting up and running that entity. For a handful of hires in a new country, an EOR is often cheaper overall.
Can I switch from an EOR to a PEO later?
Yes. A common path is to start with an EOR, set up an entity once the team grows and then employ staff directly, sometimes using a PEO or payroll provider for administration. Employees usually move to the new employer with new contracts, so plan the transfer carefully to protect continuity of service and entitlements.
Who is liable for workplace claims under each model?
Under an EOR, the EOR is the employer and will usually be the named respondent, although the service agreement shifts some risk back to you. Under a PEO co-employment model, responsibilities are split by contract and your company remains an employer, so it carries direct legal exposure.
Sources
Last reviewed:
Figures on this page were checked against these official sources on 8 October 2026. Rates and thresholds change, often on 1 January, 1 April or 1 July, so confirm current figures before relying on them.