This guide is written for UK-based businesses looking to hire outside the UK. If you’re based elsewhere, the structural comparison applies – but some country-specific details will differ, and we’re happy to advise on a case-by-case basis.
The terms EOR and PEO get used interchangeably across the industry. They shouldn’t. They describe different legal arrangements – and for a UK company trying to employ someone abroad, the difference between them determines whether your setup is compliant or whether you’re building on a foundation that doesn’t actually exist.
This guide explains what each model means, where they diverge in practice, and which one is right for your situation. The short answer – for most UK businesses hiring internationally for the first time, the right choice is EOR, but it’s worth knowing why.
What is an employer of record (EOR)?
An employer of record is a company that acts as the legal employer for workers on behalf of another business. When you use an EOR, the provider employs your overseas team member in that country – running payroll, handling tax and social security contributions, issuing locally compliant contracts, and managing employment law obligations in that jurisdiction. Day-to-day management of the person stays with you: what they work on, their objectives, their hours, their reviews and such.
This works because the EOR already has a legal entity in the target country so you don’t need one.
For a UK company hiring in Germany, India, the US, or anywhere else where you don’t have a registered foreign entity, an EOR is typically the fastest, most practical route to getting your employee on payroll compliantly. Especially if you’re testing new territories and are not ready for a full entity or office set up just yet.
What is a professional employer organisation (PEO)?
A professional employer organisation operates on a co-employment model. Rather than becoming the sole legal employer, the PEO shares employer responsibilities with your company – typically covering payroll, benefits administration, and HR compliance, while you retain day-to-day control.
Here is the detail that changes everything for UK businesses hiring abroad: a PEO typically requires you to already have your own registered legal entity in the country where your employees are based. The PEO works alongside your existing employer status. It does not replace the need to have one.
In the US domestic market, PEOs are widely used by small businesses that want to outsource HR and payroll without fully relinquishing employer status. In that context, it is a sensible model. The problem is that many buyers searching for international hiring solutions encounter the term PEO and assume it is interchangeable with EOR. It isn’t.
EOR vs PEO: the key differences at a glance
| EOR (Employer of Record) | PEO (Professional Employer Organisation) | |
|---|---|---|
| Do you need your own entity? | No – the EOR provides one | Yes – required before engaging a PEO |
| Who is the legal employer? | The EOR | Shared (you + the PEO) |
| Who handles payroll? | The EOR | The PEO, on your behalf |
| Best for | Hiring abroad without a foreign entity | Companies with existing entities wanting HR/payroll support |
| Speed to hire | Days to weeks | Months (entity setup comes first) |
| Works for UK companies hiring abroad? | Yes, in almost all cases | Only if you already have a foreign entity |
| Compliance responsibility | Primarily with the EOR | Shared between you and the PEO |
The structural difference comes down to entity ownership. An EOR removes the need for you to have one in the target country; a PEO assumes you already do.
Why this matters if you’re a UK company hiring abroad
If you’re a UK business looking to employ someone in Germany, Spain, Ireland, India, the US, or any other country where you haven’t set up a subsidiary, a PEO cannot help you. Not because the model is flawed, but because it requires infrastructure you don’t have.
Setting up a foreign entity typically takes three to six months and typically costs £10,000 – £30,000 or more in legal and accounting fees – before you factor in the ongoing compliance obligations that come with running an entity abroad. It can make sense once you’re building a large permanent team in a country, but it rarely makes sense when you’re hiring your first one or two people there; or are relocating an existing one.
An EOR gets your employee on payroll within weeks. They receive a contract that is compliant with local law, proper local benefits, and payslips that make sense under their jurisdiction. You stay focused on the work.
This is why the vast majority of UK companies hiring their first overseas employee use an EOR – even if they found the service by searching for “PEO.”
When does a PEO actually make sense?
PEOs are a good fit for businesses that already have entities in multiple countries and want a single provider to consolidate payroll, HR administration, and benefits management. Some larger US-headquartered companies use domestic PEOs in each state to manage their workforce more efficiently. That is a legitimate use case.
For UK companies specifically, a PEO may be worth considering if:
- You have an existing registered subsidiary in the target country and want to outsource payroll and HR without giving up employer status
- You are scaling a large team in a country where you already have legal presence and need structured HR support
- You need HR outsourcing within the UK itself – though payroll bureaus and domestic HR outsourcing firms tend to handle this more cost-effectively
If none of those apply, an EOR is almost certainly the right answer.
Why do people use EOR and PEO interchangeably?
The short answer: the industry made a mess of the terminology early on and has never fully cleaned it up. Many providers primarily offer EOR services but have used both terms interchangeably in their marketing. The word ‘PEO’ has become informal shorthand for international employment outsourcing generally, even when the technical model is EOR.
If you found this page searching for PEO services and you want to hire someone abroad without your own foreign entity – you’re in the right place. We just want to be clear about what the service actually is.
And if you’re still not sure which model applies to your situation, our team will give you a straight answer. That includes telling you when EOR isn’t what you need.
Frequently asked questions
What is the difference between an EOR and a PEO?
An EOR becomes the legal employer for your overseas workers, meaning you don’t need your own entity in that country. A PEO operates on a co-employment basis and requires you to have your own registered entity already in place. For UK companies hiring abroad without a local entity, EOR is the relevant service.
Can a UK company use a PEO to hire abroad?
Not directly. A PEO requires a registered legal entity in the country first. If you don’t have one – which covers most UK SMEs hiring their first overseas employee, you need an EOR.
Is Peak an EOR or a PEO?
Peak provides employer of record (EOR) services. Our trading name has historically included ‘PEO’ – a reflection of our past where we predominantly serviced US companies. But our core product these days is EOR: we act as the legal employer for your overseas workers, so you don’t need your own entity in that country.
Which is cheaper – EOR or PEO?
For a UK company hiring one to ten people in a single country, EOR is almost always the cheaper route in the short to medium term. Setting up the foreign entity required before engaging a PEO typically costs £10,000 – £30,000 in legal and accounting fees alone. EOR fees are a predictable monthly figure per employee, typically £400 – £700 depending on the provider and country. If you end up growing the overseas team to the point where it would make more sense to open up an entity, we will also help you with that.
How long does it take to hire using an EOR vs setting up an entity for PEO?
An EOR can typically onboard your employee within one to three weeks. Setting up a foreign entity, required before using a PEO, takes three to six months on average.
What does co-employment mean in the context of a PEO?
Co-employment means your company and the PEO share legal employer responsibilities. The PEO handles payroll and benefits administration; you retain day-to-day management. This only works if you already have a legal entity in the relevant country.
If I already have an entity abroad, should I use an EOR or PEO?
If you have an existing subsidiary and want to outsource payroll and HR, either model could work – it depends on how much employer responsibility you want to retain. Talk to us and we’ll give you a direct recommendation based on your situation.
Are EOR and PEO the same thing?
No. Despite being used interchangeably across the industry, they describe different legal arrangements. An EOR takes on full legal employer status; a PEO operates on a co-employment basis and requires existing entity ownership. The confusion is genuine and widespread – which is, in part, why this page exists.
Not sure which is right for you?
If you’re a UK company looking to hire abroad and weighing up EOR, PEO, or a foreign entity – start with a conversation. We will give you a clear answer, including if the answer is that EOR isn’t what you need. As a certified B Corp employer of record, one of only two B Corp-certified EOR providers in the world, we are built for UK companies that want compliant, people-first international hiring.
