What is a PEO? EOR? GEO? AOR? Our legal expert weighs in

Distributed working is a new concept. Until recently, workers always moved to take a new job at a physical location. The labor laws of that jurisdiction governed employment—simple, right?

Even as employers expanded globally, they opened local offices and hired managers to supervise compliance. Authorities could easily investigate to ensure employers followed the rules.

These days, employers don't have to incorporate in far flung countries or even in the state next door to leverage a distributed workforce. Employees don't have to leave their hometowns to get that next great job.

Want to see the Oyster platform in action? Book a demo and we promise to show you all the features that'll make your People Ops team go "woah."

But how can local authorities tasked with ensuring compliance, safety, and taxation do their jobs when there is no local office to investigate? Or when that "office" is a private home? Or more precisely millions of private homes? Governments everywhere are struggling with these challenges, which have multiplied as remote work becomes increasingly the norm. In the first quarter of 2024 alone, 35.5 million people teleworked in the U.S., an increase of 5.1 million over the previous year.

Companies looking at hiring remote employees, and doing so compliantly, are faced with a wide range of options. For most, setting up a legal entity in each individual country will be too costly and time consuming. Alas, there are alternatives, but understanding the difference has been a challenge in and of itself.

If you google "remote work," you may have been confronted with a plethora of terms: PEO, EOR, GEO, GPEO, AOR—looks like alphabet soup. To make things more confusing, the industry seems to use some terms inaccurately and others interchangeably. To help clear things up, let's look at some basic definitions of these terms.

For the purposes of this article, a "customer" is a**business who is looking for assistance with hiring workers in multiple jurisdictions and a "team member" is a worker in one jurisdiction who wants to provide services to the "customer," who is located in a different jurisdiction, this may be an employee, a contractor, or consultant.

What is a professional employer organization (PEO)?

A Professional Employer Organization (PEO) is a legal entity that co-employs your workers alongside your company. Think of it as sharing the employer responsibilities—you both legally employ the same people.

Here's what a PEO typically handles for you:

• Administrative burden: Managing employment tasks across multiple states
• Enhanced benefits: Access to retirement accounts, health insurance, and other perks at competitive rates
• Compliance support: Navigating state-specific employment regulations

The most important part of the PEO construct? Both you and the PEO employ the same team members, which creates two critical requirements:

• Entity requirement: You must be established in every jurisdiction where you use a PEO
• Shared liability: You remain the legal employer and can be held liable for all employment and compliance requirements

What is an employer of record (EOR)?

An EORis a descriptive term, not a legal term. It describes a business that provides administrative assistance to customers (companies) looking to benefit from the work of team members. An EOR does this by formally employing a team member while that team member provides services to the customer.

An EOR could be a PEO, but doesn't necessarily have to be. It can also be an employment agency (a company that provides temporary workers), an umbrella agency (a company that manages contractor tax withholdings and payments), a consultancy (a company whose employees provide services to another company), or any number of other organizations.

EORs typically operate through a direct, indirect, or hybrid model.

What's important to note here is that this descriptive name is applied to companies who help other companies compliantly hire and pay workers. Legally, an EOR may be organized differently in different countries. All EORs compliantly hire, contract, pay, support, and separate employees based on local laws and norms. They reduce the employment liability and expansion costs of businesses looking to leverage distributed work; research shows that a rise in remote workers is associated with a decrease in unit office building costs.

What is a global employer organization (GEO) or Global PEO (GPEO)?

A global employer organization (GEO) or global PEO (GPEO) is a descriptive term, not a legal term, that is used to describe an EOR which employs team members who live in jurisdictions outside of those in which customer (company) is incorporated.

Notably, it is not a PEO despite the fact that PEO is often referenced in marketing materials for these vendors. As you just learned, a PEO is a co-employer of team members, along with the customer, and employer status and liability is shared. GEOs are the sole employer of the team member, and the customer does not share that status, those duties, nor the liability. This is a crucial distinction, as determining worker status can be a complex process; getting an official determination from the IRS, for example, can take at least six months.

What is an agent of record (AOR)?

An agent or AOR is a legal termwhich describes an individual (or company) that is authorized to act on behalf of another. What does that mean? In the distributed working space, an AOR is often used to manage contractors. The AOR forwards invoices, accepts and makes payments on behalf of a contractor and the business to whom that contractor is providing services. This is a business arrangement, not an employment relationship, but it's critical to get the classification correct. According to the IRS, companies that misclassify an employee as a contractor without a reasonable basis may be liable for employment taxes for that worker.

Are EORs and GEOs legal?

Now that we've gone over the differences between some of the terms, you're probably asking yourself this question: If EORs and GEOs aren't legal constructs, does that mean using them to hire remote employees isn't legal?

Rest assured, using an EOR or a GEO is perfectly legal. The fact that these are not legal words simply means that legislation and regulation have been slow to change and right now EORs are operating in between legal constructs until legislation catches up.

Since there is no single globally-recognized legal model that reflects the services provided by an EOR, the legal construct within which an EOR operates may change from country to country. The same EOR may be deemed an employment agency in some places, while in other places, it is a consultancy, and still others, it is a payroller.

Regardless of how the EOR is organized in a particular country, an EOR provides compliant indefinite employment with protections that are equal to or greater than those provided by a local employer with a traditional office down the street. An EOR acts as the formal employer of the team member, and is responsible for all employment, tax, and compliance liabilities. This frees customers (companies) up to limit their employment liability and incorporation costs associated with expansion.

PEO vs. EOR: Key differences for global hiring

So, which model fits your situation? The choice between a PEO and an EOR comes down to one key question: do you have your own legal entity in the country where you want to employ talent?

Which model is right for your business?

Feeling clearer? Choosing the right model doesn't have to be complicated. Ask yourself these questions to find your path:

Do you have a legal entity in your team member's country?

If yes, a PEO can help you streamline HR and benefits administration. If no, an EOR is the compliant path forward.

Are you trying to expand into a new country quickly?

An EOR is built for this, allowing you to employ talent in a new market in days, not months, without the cost and complexity of entity setup. This speed is critical for tapping into talent from industries like tech and finance, where the workforce working remotely has more than doubled in recent years.

Is your main goal to offer better benefits to your existing U.S. team?

A U.S.-based PEO is designed for this purpose, giving you access to large-group benefits plans.

Are you concerned about navigating unfamiliar labor laws and compliance risks abroad?

An EOR is your partner for this. The EOR's local experts manage compliance and assume the liability, giving you peace of mind.

Is Oyster an EOR?

Oyster operates as a hybrid EOR. What that means is we operate in most countries as a global employment consulting company and we formally employ team members (employees and contractors) around the world to provide services for our customers who are looking to expand and diversify their teams. We are responsible for all aspects of those team members' employment, including registrations, payroll, insurance, pensions, employment contracts, remote work agreements, bonuses, vacations, separations, and severance; in short, the whole employee lifecycle. We help companies bridge the gap, and we do it compliantly in just minutes. To find out more, visit www.oysterhr.com.

Making the right choice for global expansion

Understanding the difference between a PEO, EOR, GEO, and AOR is your first step toward building a successful distributed team. Each model serves a distinct purpose, but for global expansion, an Employer of Record provides the fastest, most compliant path forward.

With the right partner, you can navigate legal complexities with confidence. If you're ready to build your global team the right way, you can start hiring globally with a partner who puts compliance and people first.

Disclaimer: This blog and all information in it is provided for general informational purposes only. It does not, and is not intended to, constitute legal or tax advice. You should consult with a qualified legal or tax professional for advice regarding any legal or tax matter and prior to acting (or refraining from acting) on the basis of any information provided on this website.‍

About Oyster

Oyster is a global employment platform designed to enable visionary HR leaders to find, hire, pay, manage, develop and take care of a thriving global workforce. It lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.

Oyster enables hiring anywhere in the world with reliable, compliant payroll, and great local benefits and perks.