US staffing agencies face a unique challenge but have an enormous opportunity. They have access to the biggest staffing market in the world. Still, to truly take advantage of the market, they must also deal with one of the most complicated legal and administrative requirements globally. 

Unlike many countries, the American states have significant power to decide their regulations and labor laws alongside federal regulations. 

Moreover, the US political landscape is constantly changing, as evidenced by the recent election of the Trump administration; with this comes changes to federal laws and each state's power.

This creates a complex landscape for staffing agencies to operate in, especially if they’re operating across multiple states. They effectively have to navigate multiple sets of regulations, which can be incredibly difficult at scale. These laws cover everything from tax administration to insurance requirements, industry-specific licensing, and even overtime laws. 

However, US staffing agencies must stay compliant; fines can be hefty at the federal and state levels. Furthermore, if a staffing agency violates industry-specific regulations, such as healthcare, it may be banned from operating. 

Some staffing agencies will try to handle everything in-house; however, this can be at the expense of valuable time as it’s common for staffing agency owners to spend more time dealing with compliance issues than it is growing their business. 

While hiring an internal team focusing only on compliance is possible, finding the right talent can often be costly and time-consuming. This is simply not feasible for more agile, growth-minded organizations. 

However, there are a few options for staffing agencies looking to expand in the US.

Introducing Employer of Record (EOR) and Professional Employer Organization (PEO)

EOR and PEO offer solutions for staffing agencies that want to grow but lack the internal resources or time to manage their compliance with employment laws. However, there are a few differences between the two. 

EOR 

An Employer of Record is a third-party entity that acts as the legal employer of a company’s workforce. This means they handle employee benefits and taxes and comply with local and federal labor laws, such as overtime and minimum wage regulations. 

With this model, a staffing agency retains control of its daily operations and talent management. In practice, however, the agency still has to handle payroll processing.

PEO 

A PEO is a co-employment system in which the PEO and the staffing agency share employer responsibilities. In practice, a PEO is almost a source of outsourced HR support; a PEO will handle payroll processing, benefits administration, and compliance support.

In either case, a staffing agency will retain control over business operations and supervise their talent. 

What’s The Difference Between EOR and PEO

There are a few key differences between the EOR and PEO employment models. 

Legal Employer Status 

In an EOR model, the Employer of the Record provider acts as the full legal employer for talent. This means they assume full legal responsibility for the employee and will be responsible for any compliance issues.

In contrast, a PEO provider will act as a co-employer for the staffing agencies, which means the two businesses will share the employment responsibility. These liabilities will usually be spelled out in the contract, and sometimes states mandate what a PEO is responsible for versus the client company.

Business Registration Requirements 

Due to an EOR taking on the legal responsibility of the employer, companies don’t have to establish a local legal entity to hire talent when engaging with an EOR firm. This can be useful for staffing agencies operating nationwide or globally, such as expanding their operations into the US or Canada. In comparison, a PEO will require their client company to have an existing legal entity due to the nature of the employment relationship. Furthermore, PEOs will usually require certain registrations in the local jurisdictions.

Control Over Talent Management

An EOR provider will take control of every aspect of talent compliance. This can include payroll management, compliance with overtime laws, and even minimum wage laws on a regional basis. 

A PEO firm will help a staffing agency comply with labor laws and regulations. However, an agency will retain significant control and the responsibility to stay compliant. This will commonly be the day-to-day functions such as keeping track of hours worked and licensing for industries like healthcare. The PEO contract will usually explicitly state that the staffing agency is responsible for all HR compliance outside payroll taxes, unemployment insurance, and workers' compensation insurance.

Insurance Coverage 

The level of insurance coverage on offer is also different. EORs act as the legal employer for your workforce and provide comprehensive insurance coverage, including worker’s compensation, which is mandatory in every state except Texas, and General Liability Insurance, which protects against claims of bodily injury or property damage caused by business operations.

It’s also common for EOR platforms to offer Professional Liability Insurance, also known as Errors and Omissions (E&O) insurance, which safeguards against claims of negligence or inadequate work.

In contrast, due to the co-employment nature of a PEO relationship, the insurance coverage on offer is often much more limited.

A PEO usually offers workers' compensation insurance and employer liability insurance. However, staffing agencies must still secure their own general liability, professional liability, employer's practices liability, and other insurance coverages, which can represent a large hidden fixed upfront cost.

EOR vs PEO: Which is Better for Staffing Agencies?

While there is no single answer to which service is best for staffing agencies, each has distinct advantages and disadvantages. 

Employer of Record Advantages 

The biggest advantage to engaging with an EOR for staffing agencies is the assurance they will fully comply with mitigated legal risks. This allows staffing agencies to focus on finding the best talent and making placements without spending time ensuring they’re compliant. For example, an EOR will ensure that all of a staffing agency's talent is in the correct tax classification, whether W-2 or 1099.

Furthermore, an EOR relationship prevents agencies from facing hefty fines and court cases, which can significantly affect the bottom line and disrupt growth. 

EOR providers can also benefit US staffing agencies by simplifying their expansion nationwide. By engaging with an EOR platform, a staffing agency can expand its operations into new states without having to worry about developing an understanding of that state's unique employment laws. This means that staffing agencies can operate across the country and identify potential new opportunities for growth. 

An additional benefit that EOR provides is the flexibility to maximize the US’s “at-will” employment. At-will refers to the idea that an employer can terminate an employee in the US for any reason. This allows staffing agencies to change the makeup of their talent pool quickly, and by engaging with EOR agencies, they can do this without having to spend time dealing with onboarding and compliance issues. 

An EOR will also help deal with termination issues, such as exit interviews, processing final payments, and retrieving company assets. 

As a result, staffing agencies can move quickly and take advantage of new opportunities.

Disadvantages of EOR

One of the most prominent disadvantages of EOR for staffing agencies is the cost. An EOR provider tends to cost more than the payroll burden as it has to cover all compliance responsibilities and legal risks. These costs are often worth it, however, since they cover the staffing agency from risk and ensure smooth payroll back office operations.

By engaging with an EOR, a staffing agency will also lose some control over its internal policies. This is not all bad, however, since the EOR will ensure compliant HR policies, which can eliminate legal challenges during rapid expansion.

Advantages of PEO

PEO provides a similar advantage to EOR by easing administrative burdens. However, The most significant advantage of engaging with a PEO provider compared to an EOR is that, due to the co-employment relationship, they have a significantly cheaper cost than an EOR service. 

This can make them more beneficial for companies with more internal resources who want to do compliance and back office in-house.

A PEO provider will also allow a staffing agency to retain control of some of their employment policies to retain any benefits that help attract top talent. This is a double-edged sword, however, since it opens up the staffing agency to making HR mistakes.

Disadvantages of PEO 

The biggest disadvantage of engaging with a PEO provider instead of an EOR is that a staffing agency will still have to manage some aspect of compliance with labor and employment regulations. This means agencies must adapt to different state regulations and stay current with changing federal guidelines. 

Consequently, growth-minded staffing agencies may need help taking advantage of new opportunities and dealing with any fines or court cases that may arise. This can make establishing a consistent pattern of growth much more difficult. 

How to Choose Between EOR and PEO 

There is no “best” option between EOR and PEO. However, depending on a staffing agency's goals and current situation, there is normally a suitable option. 

Generally speaking, if you’re looking to grow quickly and be able to operate dynamically, such as in new states or industries, without worrying about compliance issues, then an EOR will be the best option for your staffing agency. An EOR provider will handle your compliance concerns and enable you to scale up quickly without being dragged down by regulations. 

However, if your agency wants to consolidate its place in a single market and has a long-term consistent plan, then a PEO service will help alleviate some administrative burden with a lower cost and more control. This can be a good option if you’re not considering changing your operations soon and are familiar with local and federal regulations.

Ascen

No matter what option you choose for your staffing agency, we built Ascen to help you. Ascen provides both EOR and PEO services, including:

Employer of Record (EOR)

For staffing agencies aiming to expand rapidly across the U.S., Ascen's EOR services are ideal. By acting as the legal employer, Ascen manages:

Compliant Onboarding and Payroll: Ensuring adherence to federal and state labor laws.

Insurance Coverage: Workers' compensation, general, and professional liability insurance.

Employee Benefits: Offering health, vision, dental, life, disability, and retirement plans.

HR Compliance and Guidance: Navigating complex employment regulations.

Background Checks and Drug Tests: Conducting thorough pre-employment screenings.

These services enable staffing agencies to focus on core operations while Ascen handles compliance and administrative responsibilities. 

Timesheet and Expense Management: Simplified tracking and approval workflows.

Real-Time Reporting: Access to detailed insights on billing, payroll, profits, and distributions.

API and ATS Integrations: Seamless connectivity with existing systems for enhanced efficiency.

Please schedule a demo here if you’d like to see how Ascen can help your staffing agency.