PEO or Employer of Record in the Philippines: What’s Best For Your Company?

Lorraine Bunag

31 May

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Expanding your business into the Philippines is a strategic move that can offer significant opportunities for growth. However, going through the complexities of employment laws and administrative tasks can be challenging. This is where a Professional Employer Organization (PEO) and an Employer of Record (EOR) can be invaluable. Between PEO and employer of record, which one is best for your business?

Professional Employer Organisation (PEO) vs Employer of Record (EOR), An Overview

PEO and Employer of Record are third-party agencies that companies can partner with to handle various employment-related functions, helping businesses manage their workforce more efficiently and compliantly.

Partnering with a PEO or EOR allows you to focus on core tasks of your business. However, the responsibilities managed by a PEO differ from those handled by an EOR, primarily due to the nature of their roles. To better understand these differences, let’s briefly define PEO and EOR.

Professional Employer Organisation

A Professional Employer Organization (PEO) is a firm that provides comprehensive human resource services to businesses through a co-employment model.

When your company ties up with a PEO in the Philippines, you would share employment responsibilities with them.

Employer of Record

An Employer of Record (EOR) is also a third-party organisation, however, unlike a PEO, they become the full legal employer of your staff on your behalf.

The EOR handles all employment-related responsibilities, including compliance with local labour laws, payroll, and benefits administration.

PEO vs Employer of Record: Key Differences

Let's explore the key differences between PEO and EOR, focusing on their structure, the setup of a legal entity, risk management and compliance, services, and cost.

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Aspects	PEO (Professional Employer Organization)	EOR (Employer of Record)
Legal Employment Relationship	You are a co-employer, therefore must own a local entity and share responsibilities with the PEO for HR functions like payroll, tax filing, and compliance.	The EOR is the full legal employer and thus assumes all legal responsibilities for the employees, allowing you to operate without a local entity in the Philippines.
Setup of Legal Entity	Requires you to establish a local entity in the Philippines to utilise their services.	No need to set up a local entity, as the EOR acts as the legal employer in the country.
Scope of Services	Comprehensive HR management, including payroll processing, benefits administration, tax filing, workers' compensation, and risk management.	Global employment and compliance services, such as locally compliant employment contracts, work visas, payroll processing, and benefits.
Employee Management	You retain control over daily management tasks, including salaries, scheduling, and HR responsibilities.	EOR can manage daily affairs, including payroll, benefits, and compliance, while you control company operations and task distribution.
Geographic Coverage	Typically domestic or regional.	Ideal for international coverage, as they can navigate international labour laws to facilitate global expansion.
Work Visas and Permits	May assist with work visas and permits but generally requires your entity to be involved in the process.	Provides necessary work visas and permits for international employees, handling all related legalities.
Risk Management and Liability	Shares liability for tax filing and compliance issues, absorbing penalties for errors.	Assumes full liability for compliance with local employment laws, minimising your organisation's risk and liability concerns.
Cost	Typically involves service fees based on the scope of HR functions managed, along with shared responsibilities for compliance and risks.	Usually charges a fee per employee, covering the full spectrum of employment responsibilities and legal compliance, potentially higher for extensive global operations.

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Here’s a more detailed explanation of their key differences:

Structure

As mentioned, in a PEO arrangement, your business and the PEO enter into a co-employment relationship. The PEO takes over specific HR functions, but your company is still responsible for some employment duties and retains control over the day-to-day management and operations of your employees.

On the other hand, the EOR becomes the employer of your staff for legal and tax purposes. In other words, the EOR takes on all employment responsibilities, while you manage the employees' tasks and productivity.

Services offered and employee management

PEOs mostly offer a wide range of HR and administrative services, but your company remains involved in the day-to-day operations. Professional Employer Organisations in the Philippines can handle:

Processing payroll
Managing tax filings
Ensuring payroll compliance
Issuing international payments
Administering employee benefits
Sponsoring health, business, and worker’s compensation insurance
Managing employee relations
Handling recruitment for a more seamless hiring
Offboarding

EORs provide comprehensive employment services. Your company still handles the business operations and task distribution, but in many cases, EORs can also handle the daily affairs of management. Here are some of the tasks an employer of record can handle:

Recruiting for a seamless hiring, onboarding, and terminating international employees in compliance with local laws
Drafting employment contracts that adhere to local regulations
Securing necessary work visas and permits
Handling local administrative tasks
Processing payroll
Administering employee benefits
Managing timesheets for certain employees

Here’s more information about:

Setting up a business entity

Since you co-employ the staff with a Professional Employment Organisation (PEO), it follows that your business still needs to have a legal entity in the Philippines.

In contrast, since the EOR is the full legal employer of your staff in the Philippines, you do not need to establish a local entity.

Here’s more information on:

Risk management and compliance

As a co-employer, your organisation and the PEO share the risk and compliance duties. Hence, even if the PEOs handle things like payroll, your company can absorb penalties for errors.

The EOR, however, assumes all legal risks associated with employment. They ensure full compliance with local employment laws, reducing the risk for your business.

Here’s more information on the Philippine Employment Laws.

Costing

PEO services can be cost-effective for companies with an existing legal entity in the Philippines. Fees are usually based on a percentage of the total payroll or a flat monthly fee per employee. However, additional costs may arise from the need to maintain a legal entity and handle some compliance aspects internally.

EOR services tend to be more expensive than PEO services because they take on full legal responsibility for your employees. Costs are typically higher due to the comprehensive nature of the services provided, but they eliminate the need for a local entity, which can offset some of the expenses.

Key Advantages of Professional Employer Organization (PEO) and Employer of Record (EOR)

Understanding the advantages of PEO and EOR can help you determine which solution aligns best with your business needs.

Advantages of Professional Employer Organisation (PEO)

PEOs can be more affordable for companies that already have a legal entity in the Philippines. Moreover, since they take over some of your HR functions, they save you money from the workforce and help you avoid costly mistakes.
Your company retains control over employee management and operational decisions.
PEOs offer extensive HR support, from payroll to benefits administration and compliance assistance.
PEOs can help scale HR functions as your business grows, offering flexibility and adaptability.

Advantages of Employer of Record (EOR):

EORs allow you to operate in the Philippines without establishing a local entity, saving time and resources. Thus, they enable faster market entry by streamlining the hiring process and ensuring compliance with local regulations.
Since EORs take full responsibility for compliance with local employment laws, they reduce legal risks for your business.
EORs handle all employment-related tasks, from hiring to termination, making it easier to manage a remote workforce.

Deciding Between PEO and Employer of Record: Questions to Ask

To determine whether a PEO or EOR is the best fit for your business, consider the following questions:

Are you setting up a legal entity in the Philippines?

If you plan to establish a legal entity in the Philippines, a PEO may be the better choice. PEOs can manage HR functions while allowing you to retain control over your business operations.

However, if you do not want to set up a local entity yet, an EOR is the ideal solution. EORs enable you to hire remote employees and operate in the Philippines without the need for a legal entity.

How many employees are you hiring?

For small to medium-sized teams, a PEO can be a cost-effective solution, providing comprehensive HR support without the need for a significant investment in local infrastructure.

If you plan to hire a larger workforce, an EOR might be more suitable. EORs can handle the complexities of managing a larger team, ensuring compliance and reducing administrative burdens.

Would you have full-time employees or contractors?

Generally, your company does not need a PEO or Employer of Record to manage contractors, but if you want to employ a mix of full-time employees and independent contractors, it would be best to consider partnering with an EOR as they can create contracts.

The Next Steps

Whether you choose to hire a PEO or an EOR, it’s crucial to select an agency that conducts thorough background screening, especially during hiring and recruitment.

Remember that your company’s success hinges on the quality and reliability of your employees. Comprehensive background checks ensure that you bring on board individuals who not only have the right skills and experience but also align with your company’s values and standards. This reduces the risk of future issues and enhances overall productivity and workplace harmony.

If you opt for a PEO in the Philippines, remember that you share the risk and compliance duties with them. This shared responsibility makes it essential to conduct rigorous background checks on all prospective employees. Learn more about Background Checks in the Philippines here.

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FAQs

What is the main difference between a PEO and an EOR?

A PEO acts as a co-employer, requiring your business to have a local entity, while an EOR assumes full legal responsibility for employees, allowing you to operate without a local entity.

Which option is better for small businesses?

An EOR is often better for businesses looking to expand internationally without establishing a local entity, as it simplifies compliance and administrative tasks. For small businesses who still lack in-house HR capacities, PEO may be better.

Do PEOs and EORs handle payroll?

Yes, both PEOs and EORs manage payroll, but EORs also ensure compliance with local labour laws.

Can PEOs help with international hiring?

PEOs primarily operate within regions where your business has a local entity, whereas EORs specialise in international hiring and compliance.

FAQs

What background check do I need?

This depends on the industry and type of role you are recruiting for. To determine whether you need reference checks, identity checks, bankruptcy checks, civil background checks, credit checks for employment or any of the other background checks we offer, chat to our team of dedicated account managers.

Why should employers check the background of potential employees?

Many industries have compliance-related employment check requirements. And even if your industry doesn’t, remember that your staff have access to assets and data that must be protected. When you employ a new staff member you need to be certain that they have the best interests of your business at heart. Carrying out comprehensive background checking helps mitigate risk and ensures a safer hiring decision.

How long do background checks take?

Again, this depends on the type of checks you need. Simple identity checks can be carried out in as little as a few hours but a worldwide criminal background check for instance might take several weeks. A simple pre-employment check package takes around a week. Our account managers are specialists and can provide detailed information into which checks you need and how long they will take.

Can you do a background check online?

All Veremark checks are carried out online and digitally. This eliminates the need to collect, store and manage paper documents and information making the process faster, more efficient and ensures complete safety of candidate data and documents.

What are the benefits of a background check?

In a competitive marketplace, making the right hiring decisions is key to the success of your company. Employment background checks enables you to understand more about your candidates before making crucial decisions which can have either beneficial or catastrophic effects on your business.

What does a background check show?

Background checks not only provide useful insights into a candidate’s work history, skills and education, but they can also offer richer detail into someone’s personality and character traits. This gives you a huge advantage when considering who to hire. Background checking also ensures that candidates are legally allowed to carry out certain roles, failed criminal and credit checks could prevent them from working with vulnerable people or in a financial function.