These two models are frequently conflated, and providers do not always help by using the terms loosely. The difference comes down to one question: who is the legal employer, and do you need your own entity in the country.
Employer of Record
An EOR is the legal employer. It holds the employment contract, runs payroll, withholds taxes and carries the compliance obligations in that country. You direct the person's work day to day, but you do not need a registered entity there. This is what makes an EOR the route into a country where you have no presence.
Professional Employer Organisation
A PEO enters a co-employment relationship alongside your own legal entity. You remain an employer; the PEO takes on payroll, benefits administration and some HR compliance, typically achieving better benefit pricing through pooled scale. Because you are still an employer, you must already have an entity in that country.
Choosing between them
- No entity in the country: an EOR is the option that works
- Existing entity and a wish to offload HR administration: a PEO may fit
- Testing a market before committing to incorporation: an EOR
- Large domestic headcount seeking better benefits pricing: often a PEO
A note on terminology
The PEO model is most established in the United States, where co-employment has a defined regulatory framework. Elsewhere, "global PEO" is often used to describe what is functionally an Employer of Record. If a provider markets a global PEO, it is worth asking directly whether you need your own entity, because that answer determines which model you are actually buying.