How does the PEO/Employer of Record model differ from direct employment in a global context?

• A. EOR hires workers directly in its own entity, while PEO outsources payroll.
• B. PEO covers payroll only; EOR covers compliance only.
• C. The EOR employs workers locally on behalf of the client; the PEO uses a local entity to handle payroll and compliance while the client governs work; both reduce setup time.
• D. Both models function the same as direct employment, with no setup differences.

Answer: (C)

In global staffing, the Employer of Record (EOR) and a Professional Employer Organization (PEO) are two ways to hire abroad without creating your own local entity, but they place the legal employer role differently. In an EOR arrangement, the worker is employed locally by the EOR and the EOR acts as the legal employer for all payroll, taxes, benefits, and compliance with local labor laws. The client company directs the work and exercises day-to-day control, but the employment relationship sits with the EOR. In a PEO setup, a local entity (the PEO) handles payroll, tax withholdings, benefits, and HR compliance for workers who are effectively co-employed, while the client company retains primary responsibility for supervising the employees’ tasks and work outcomes. Both approaches speed entry by avoiding the need to establish a local subsidiary, but they distribute HR responsibilities and legal obligations differently.

That’s why the best description is that the EOR employs workers locally on behalf of the client, while the PEO uses a local entity to handle payroll and compliance while the client governs work; both reduce setup time. The other options either oversimplify or misstate who is the legal employer or what the models cover.