Employer of Record vs PEO, GEO, ASO, R&D

The need for tech talent is at an all-time high, with 86% of CIOs facing fierce competition for qualified candidates. Businesses are actively seeking new ways to enlarge their development teams, and Employer of Record is a standout solution. 78% of business leaders consider using EOR for expansion, and 79% report an improved ability to scale operations globally. Consequently, the global EOR market size is expected to grow at a CAGR of 12.07%, reaching $3745.43 million by 2030.

But is EOR the best solution for your tech business?

I’m Viktoriia Keliar, COO at Alcor. We provide a one-stop-shop R&D center solution for IT companies, expanding in LATAM and EE. With tech recruitment, EoR services, and operational support, we scale R&D teams from 0 to 100 Valley-like engineers in a year.

In this article, I’ll uncover the specific features of the EOR model, explain how it works, and explain when and why businesses use it. I’ll also compare it with PEO, GEO, ASO, and Software R&D Center solutions. The key difference between EOR and PEO? EOR is the legal employer of the cross-border workforce, while PEO acts as a co-employer. For more insights, read on!

What is an Employer of Record and How it Works

Employer of Record (EOR) is a third-party vendor that assists tech companies with compliant employing of an international workforce. Instead of opening your legal entity abroad, the EoR provider serves as a legal employer of software developers on your behalf. 

How does it actually work? Imagine you’d like to build a software development team in Latin America. You’ve found perfectly matching developers for hire in Chile and Mexico. But here is the obstacle: you are unaware of the local laws and regulations to employ them compliantly. Plus, you don’t have a legal entity. So, what to do? There are three options:

1. Extend the in-house legal and accounting teams to establish legal entities in both countries, tackling all the bureaucratic matters,
2. Outsource legal, payroll, and HR operations to multiple local vendors, 
3. Or partner with an Employer of Record provider who will cover all the hassle for you.

The first option is highly time- and cost-consuming. You have to learn the specifics of the local legislation and labor laws and spend months and a hefty sum on setting up your legal entities. Company incorporation in Mexico and other LATAM countries is a multi-step process. It encompasses everything from company name registration and obtaining a fiscal address to getting permits and necessary licenses and further management of developer employment and tax payments. 

The second variant is full of pitfalls. You may risk your corporate and employee data by sharing it with multiple providers. Another issue is effective vendor management. This presupposes a lot of effort from your side, including task delegation, problem-solving, performance monitoring, and process integration. It also makes it harder to scale the project when needed, as coordinating changes across providers can be challenging. Hidden fees are another issue that may arise in such partnerships, as fragmentation of the budget can lead to unforeseen increases in contractor costs. 

Discover the cons & pros of IT outsourcing to Latin America and outsourcing IT in Eastern Europe!

So, the way out? Cooperate with one provider that specializes in Employer of Record services, covering onboarding/offboarding of IT workers, monthly payroll, tax payments, accounting, legal compliance, and benefits management. Everything is in one place to liberate you from unwanted hassle.

Why Business Use EOR and When

Let’s start with when tech companies should opt for Employer of Record services:

• Expanding internationally

Entering new markets is not a walk in the park. Each country has its own legal, employment, accounting, and payroll specifics. For instance, you need to know the difference between the types of employment contracts, the terms of employing local talent presupposed by labor law, payroll remittance specifics, and employee benefits settlement and management. EoR providers like Alcor save your day in this regard, as we cover every nitty-gritty detail, providing smooth and headache-free expansion. 

• Engaging global tech talent

As I mentioned previously, employing foreign tech talent presupposes having a legal entity in the country of your expansion, which is the critical difference regarding Employer of Record vs staffing agency. That’s when Alcor, as your local EoR provider, comes in handy. Since we already have legal entities in multiple locations, you can employ software developers without the hassle of complying with foreign laws and regulations.

Find out how hiring software developers from Colombia can boost your tech business.

• Dealing with legal issues

Sailing in unfamiliar waters can be challenging without legal guidance. Failure to comply with local legislation can cost you an arm and a leg. So, assistance from a professional EoR provider can save your day. If you partner with Alcor, you’ll get legal navigation, compliant employment contracts, protection from possible legal liabilities, work permit and visa coverage for developers and consultations on regulatory updates.

• Lacking internal expertise

When expanding into new markets, you may naturally need more in-house specialists to deal with foreign laws, regulations, employment structures, payroll processing, etc. Instead of scaling your internal team, your EOR partner can provide you with specialized knowledge and handle all operations and complexities, ensuring legal and administrative peace of mind.

Now, let’s move on to why using EoR services. Here are just a few reasons:

• Time and cost reduction

Using EOR services, tech companies like yours can minimize the time it takes to enter a new market since they don’t have to handle operational functions themselves. For instance, Alcor offers an all-one-one solution that eliminates the need for multiple vendors. By doing everything in one place, you can easily track the administrative and operational processes, make needed adjustments, and bypass any hidden costs. Plus, you can avoid the expenses of establishing a legal entity in a foreign country and hiring additional staff. 

• Risk mitigation

EOR providers assume many of the risks associated with software developers’ employment, such as contract compilation, handling terminations, severance, and compliance issues, and managing employee benefits, which reduces the burden on you as a client. In addition, they cover tax withholding and payroll processing so your engineers can receive timely and accurate payments.

• Focus retention

Cooperation with an Employer of Record provider frees your team from administrative and operational hurdles in the country of your expansion. Instead, you can focus on core operations and strategic objectives like developing software products and growing your business.

• Scalability

An EoR vendor like Alcor knows all the ins and outs of the software developer onboarding and offboarding process. So, you’ll have the flexibility to scale the engineering team up or down quickly based on your business needs without the complexities of traditional employment models. 

Professional Employer Organization vs EOR

Professional Employer Organization (PEO) is a third-party vendor offering a comprehensive HR solution for small and medium-sized businesses to focus on core operations. Among the most popular PEO services are HR management, payroll processing, and regulatory compliance management.

So, let’s compare Employer of Record vs Professional Employer Organization to know which one is more suitable for your business. 

1. Legal entity & employment. When cooperating with an EOR provider, you can easily employ software developers via their legal entity. As a result, the EOR vendor becomes a legal employer of your engineers on paper, while you remain their only official employer. PEO partnership, on the other hand, presupposes establishing your own legal entity in the country of expansion and entering a co-employment agreement, where you and your PEO share employer responsibilities.
2. Compliance responsibility. Since an EOR company acts as an actual employer of your developers, it assumes all employment risks and liabilities related to the services it offers. Meanwhile, PEOs share legal liabilities with the client company because they act as co-employers in this case.
3. Scope of services. EOR providers focus on the legal employment of developers, covering onboarding/offboarding processes, ensuring full compliance with local and foreign laws, managing payroll processing, employee benefits, and some HR tasks. PEOs, on their part, primarily focus on HR functions, including employee onboarding, training and development, performance, benefits, and risk management, as well as covering payroll and regulatory compliance. 
4. Area of operation. Another distinction between PEO vs EOR companies is the location of their operations. The former is usually provided in the client’s immediate area since a legal entity is needed when expanding abroad. EOR services, on the other hand, are the most convenient for international employment of developers, as your EOR partner already has legal entities abroad.
5. Client companies. The difference between PEO vs EOR providers regarding client companies is simple: the former are suitable for small and medium-sized businesses that need assistance with HR management, while the latter is ideal for medium and large companies that actively scare their development teams by entering new markets. 
6. Cost. The price of PEO vs EOR services is quite dissimilar. PEO’s costs can vary more widely based on the range of services and benefits included, with fees tied to the total payroll and administrative functions. EOR’s costs are often more predictable, with flat fees per employee and percentage-based charges related to payroll.

Does Your Business Need PEO or EOR services?

To sum up the comparison of EOR vs PEO providers, PEO is the most suitable for SMBs who are looking for professional assistance in HR-related operations in their local area. This kind of partnership is executed on a co-employment basis, meaning that the client and provider have shared liability over employees. 

Meanwhile, EOR is ideal for tech companies exploring the possibilities of entering new markets and employing a global IT workforce. Even though an EOR provider becomes a legal employer of your engineers, you still remain their official employer. With a broad spectrum of services, your EOR partner can provide needed support in the foreign market so you can focus on your core tasks. 

EOR vs PEO vs GEO vs ASO vs R&D Center

Wow, there are so many HR and employment outsourcing providers in the market. What are their main differences, and how do you pick the one that suits your IT business the most? Let’s dive into the terms and model specifics.

Global Employment Company (GEO) is a third-party vendor that provides international employment solutions for companies that expand abroad. Businesses can use GEO to hire IT contractors based anywhere in the world without establishing a new branch in each expansion location. Most GEOs provide global employment outsourcing, meaning they act as an Employer of Record to hire remote employees on a company’s behalf. Unlike EOR, GEOs operate globally without limiting themselves to a particular region and offer a broader range of services and additional support for international operations.

Administrative Services Organization (ASO) is a business process outsourcing provider specializing in HR administration and covering employee benefits management and payroll processing. Unlike PEOs, ASOs don’t operate under the co-employment model, meaning they don’t share legal responsibilities and liabilities pertaining to clients’ employees. ASOs’ scope of services is much narrower than EORs or PEOs, and they mainly operate domestically. 

Learn about Build Operate Transfer services to know all the alternatives for expanding abroad.

Software R&D Center is a turnkey solution for tech companies that expand abroad. Unlike other HR and employment outsourcing solutions, the offshore software development center model covers not only EOR services but also tech recruitment and operational support — everything to enter new markets swiftly and compliantly. Like with EOR and GEO, tech companies don’t need to open their legal entity but use a provider’s one to employ tech talents. In case their business grows and so does their remote team, they can establish their own R&D center with all the operational functions covered. Sounds like a magic formula for your tech business, don’t you think? 

Features
	EOR	PEO	GEO	ASO	R&D
Need for legal entity	no	yes	no	yes	no
Employment model	full legal employer	co-employer	full legal employer	client is EOR	full legal employer
Compliance responsibility	full	shared	full	on client	full
Scope of services	wide	limited	wide	limited	wide
Area of operation	globally	mostly locally	globally	locally	globally
Client companies	medium & large businesses	SMBs	medium & large businesses	SMBs	medium & large businesses
Recruitment services	no	no	no	no	yes

How Alcor Complements EOR to Fulfill All Business Needs

The software R&D center solution is what we at Alcor provide to tech companies expanding in LATAM and Eastern Europe. Unlike traditional outsourcing and other HR and employment providers, with our solution, you’ll 

• avoid establishing a legal entity;
• skip paying any buy-out & setup costs;
• get access to our network of 250K Valley-Like talents ;
• enjoy entire team integration into your company & culture;
• cut your labor expenses by 20%-40%;
• enjoy liability shield in EE & LATAM.

What kind of services can you get with our 360-degree R&D solution? Here’s what we offer: 

EOR:

• onboarding/offboarding;
• monthly payroll & accounting;
• remitting remuneration;
• employee benefits management.

Tech Recruitment:

• ideal candidate profiles and EVP creation;
• candidate sourcing, headhunting, and pre-screening;
• HR interviewing;
• job offers & counteroffers management; 
• weekly reporting;
• consultations on developer’s compensation, talent availability, and tech hiring landscape.

Operational support:

• hardware procurement;
• office lease & negotiations;
• IT support;
• insurance provision;
• employer branding;
• HR services.

I bet you’d like to know how our software R&D center solution works in practice. Let’s look at our success case with Sift. This US-based tech company wanted to expand to Eastern Europe and build a team of 30-35 developers. Alcor’s all-in-one solution came in handy. 

We started cooperating with full-cycle tech recruitment, closing the Head of R&D position from the second CV and hiring 2 Infrastructure Engineers and a Ruby on Rails Developer in just a week. Meanwhile, our legal and accounting teams handled the employment contracts, tax management, and compliance with EU and US laws. The icing on the cake was Alcor’s operational team, which took care of the office leasing and hardware procurements for the client’s R&D center. And voila, Sift legally and transparently expanded to EE within just 12 months! 

So, what are you waiting for? Join our cohort of happy clients, including big names like People.ai, BigCommerce, and ThredUP, and start reaping the benefits of having your own R&D team in EE or LATAM.