What is the difference between EOR, AOR, and PEO?

If you’re looking to expand into the US or simply scale up operations in America, you may have heard the terms Employer of Record (EOR), Agent of Record (AOR), and Professional Employer Organization (PEO). All three solutions give staffing agencies a unique opportunity to build a global workforce while outsourcing some or all their payroll and compliance duties. PEO, EOR, and AOR each have unique advantages and disadvantages, so it's important to know the difference and how each solution aligns with your goals.

Risk tolerance, organization size, and even your budget all have a key part to play.

What is EOR, AOR, and PEO?

In short, an Employer of Record (EOR) solution is a legal entity in the US that acts as the legal employer of your staffing agency employees. The EOR assumes full legal responsibility for the contract workforce: everything from workers’ compensation, unemployment claims, onboarding requirements, wage and hour compliance, and even litigation defense.

An Agent of Record (AOR) provides a similar service to an EOR but instead manages independent contractors (ICs) while ensuring correct IC classification, compliance, and payments. Many EORs also provide AOR services.

A PEO, in comparison, consists of a co-employment agreement, which means you still assume shared legal responsibility for your staffing agency employees. PEOs may provide payroll, insurance, and HR services, or a mix of these services. However, the staffing agency must still have an entity, be registered in the states it employs workers, and ensure compliant HR and payroll practices.

What is an EOR, and what are the benefits?

An EOR solution will assume the full legal responsibility of your staffing agency employees in the US. The EOR legal entity will manage payroll, taxes, insurance (like workers’ compensation and commercial general liability insurance), and employee benefits.

One primary benefit of an EOR solution is that it enables rapid expansion throughout the US without requiring you to set up a legal entity or without a compliance team to ensure federal and state HR compliance.

An additional benefit is that an EOR solution takes full employment risks and liabilities away from you. If, for example, an employee feels they were wrongly terminated, then an EOR must deal with the situation without forcing you to engage with the US legal system.

Similarly, a quality EOR solution will provide full insurance coverage from potential liabilities such as worker insurance or even cyber-attacks. Large clients and managed service providers (MSPs) will often have high insurance requirements and an EOR will provide coverage for all of these requirements (along with their Certificate of Insurance, or COI).

A good EOR solution will also provide on-demand HR expertise, which can be especially useful if you’re expanding into America for the first time. From different standards of work hours to payroll, there's a lot to consider, which an EOR can help smooth over. EORs do this as part of their services because, ultimately, the EOR is on the hook for HR compliance.

Finally, a staffing agency-oriented EOR solution can also offer payroll funding. By financing your invoices, funding EORs will provide the cash to cover payroll while you wait for end clients to pay.

What is an AOR, and what are the benefits?

An Agent of Record (AOR) works in almost the same way as an EOR solution, but instead of managing W-2 employees, an AOR manages independent contractors (such as 1099 or “Corp-to-Corp”/”C2C” independent contractors). The key benefit of an AOR is that it provides a buffer layer between you and the compliance risks when you staff out independent contractors.

An AOR solution can help handle contracts, invoices, and international payment management, as these are typically more dynamic than with a standard contracted employee.

When dealing with independent contractors, many compliance risks can pop up, the biggest being misclassification. If an employee is misclassified as an independent contractor, the staffing agency is exposed to lawsuits and regulatory action from state and federal departments of labor and state and federal tax agencies. Fines and penalties can go into the millions of dollars for unpaid overtime, taxes, and benefits. A quality AOR solution will help mitigate these risks and ensure your staffing agency is compliant.

What is a PEO, and what are the benefits?

A Professional Employer Organization differs from AOR and EOR as using a PEO will require that you have a legal entity and maintain HR compliance.

Essentially, a PEO will enter a “co-employment” relationship with a staffing agency, which means the staffing agency retains a large amount of legal responsibility for the employees. You can think of a PEO as half of an EOR solution since PEOs will contractually and sometimes legally only be responsible for part of the employment relationship. Nonetheless, a PEO can provide HR support, from payroll to workers’ compensation insurance and unemployment claims management.

While a PEO will not assume full legal responsibility for your staffing agency employees in the US, it can still serve a key role in your growth strategy by providing HR expertise and core HR functions.

How to Make the Right Choice for Your Staffing Agency?

There’s no one right answer when you’re looking to expand your staffing agency across the US. However, there are a few considerations to make when you’re deciding.

For example, if your workforce is less than five, most PEOs may not onboard you due to high administrative costs and health benefits risks. Similarly, if you don’t yet have a legal entity set up, you will need to go through either an EOR and not a PEO.

It’s also worth noting that while PEOs can handle worker’s compensation insurance, payroll processing, taxes, unemployment claims, and benefits, they typically can’t or won’t handle much else. Other compliance matters will be the responsibility of the staffing firm, so before choosing the PEO route, you must be sure you have a compliance team in place or, at the very least, diligent knowledge of each state in which you plan to operate.

In contrast, an EOR or AOR solution can handle all that a PEO can and other compliance requirements such as onboarding, notices, professional and general liability insurance, employee relations, and any other litigation matters. This makes EOR a better option if you currently don’t have an in-house compliance team or in-depth knowledge of where you plan to expand.

 Another consideration to balance is how risk fits into your long-term projections. PEO solutions are generally a bit cheaper upfront. However, as a co-employer, your staffing agency takes on significantly more risk, so EOR and AOR solutions may be cheaper once other costs (including opportunity costs) come into play.

It’s also worth noting that these solutions aren’t mutually exclusive. For example, if you’re looking for a legal entity and HR expertise, you could go through an EOR first to establish employment through a legal entity and then eventually work with a PEO solutions provider

How Ascen Can Help

At Ascen, we built our platform to adapt to you. We cover both EOR and AOR services so you can hire the best talent without worrying about compliance.

Made with staffing agencies in mind, the Ascen platform also features back-office management solutions such as time sheets, payroll, and billing. We also offer payroll funding and employee benefit management.

If you’d like to hop on a call to see Ascen in action, please contact us for a demo.