As your company grows, the way you employ people often gets more complicated.
Maybe you've built a solid domestic team with an assist from a Professional Employer Organization (PEO), which handles your HR, payroll, and benefits through a co-employment arrangement. But now you're eyeing global talent — and you're wondering whether your PEO can help you employ internationally, or whether you need a new solution.
PEOs and Employer of Record (EOR) services solve different employment challenges. A PEO manages HR for your domestic employees through co-employment, where you share specific employer responsibilities. On the other hand, an EOR partner becomes the full legal employer of your international workers in countries where you don't have a local entity.
The good news is that you don't have to choose. Many companies use both — a PEO for local staff, and an EOR for global employees.
Key takeaways:
- Co-employment through a PEO is designed for domestic workforce management, while an EOR handles international employment in countries where you lack a legal entity.
- Companies can use both employment models simultaneously, but each employee can only be employed through one arrangement — and you cannot co-employ with an EOR.
- Combining a PEO for local employees with an EOR for international hires offers a streamlined approach to scaling your workforce while maintaining compliance on both fronts.
The Shifting Approach to Global Hiring
According to the World Economic Forum's Future of Jobs Report 2025, 70% of employers plan to hire workers with new skills over the next five years. With 170 million new jobs projected globally by 2030, competition for talent is fiercer and more geographically dispersed than ever.
Deloitte's 2025 Global Human Capital Trends report found that organizations are struggling to access talent while navigating an increasingly complex web of employment regulations. Finding the right people is one problem. Employing them compliantly is another.
Companies have options: establishing legal entities in new countries (expensive and slow), engaging independent contractors (risky due to the potential for misclassification), partnering with an EOR for international hires, or working with a PEO to manage HR tasks for domestic employees. Many mix these models — using a PEO at headquarters, an EOR provider for new global markets, and contractors for project work.
What Is Co-employment?
Co-employment is a contractual arrangement where a business shares employer responsibilities with a PEO. SHRM's HR glossary defines it as "the relationship between an employer and a professional employer organization, based on a contractual sharing of liability and responsibility for employees."
In practice, the PEO handles administrative functions: payroll processing, tax withholding, employee benefits administration, workers' compensation, and HR compliance. The PEO files payroll taxes under its own EIN, acting as the statutory employer for tax purposes. Your company keeps operational control — hiring, firing, compensation decisions, day-to-day management, and setting workplace policies.
The IRS recognizes PEOs as third-party payer arrangements. A Certified Professional Employer Organization (CPEO) can assume sole responsibility for federal employment taxes, protecting client companies if the PEO fails to remit taxes. With a non-certified PEO, that liability stays with you.
NAPEO industry data indicate that roughly 200,000 small and mid-sized businesses, most with between 10 and 49 employees, utilize PEOs — employing approximately 4.5 million workers. But PEOs have a geographic ceiling: they can only operate domestically. They can't serve as your legal employer in countries where you (and they) lack an established presence. For that, you need an EOR.
Co-employment vs. EOR: Key Differences
Both models help companies manage workforce complexity, but they differ in four key ways.
- Legal employer status: In a co-employment arrangement, your company remains a legal employer alongside the PEO — you share responsibilities. With an EOR, the EOR becomes the sole legal employer in that country. You manage the employee's work, but on paper, they are employed by the EOR.
- Entity requirements: Co-employment through a PEO requires you to have an existing legal entity in that country. An EOR lets you employ workers where you have no legal presence — the EOR's entity becomes the vehicle for employment.
- Compliance responsibility: In co-employment arrangements, compliance is determined per your agreement. The PEO handles payroll taxes and benefits; you handle workplace policies. With an EOR, the EOR assumes responsibility for all employment law compliance — contracts, payroll, statutory benefits, termination procedures — while you remain responsible for the work itself.
- Geographic scope: PEOs only operate domestically. For example, a Canada-based PEO cannot co-employ workers in Germany or Japan. EORs exist to address this wrinkle in international hiring, maintaining entities worldwide so you can employ talent in new markets without establishing a physical presence.
Can You Use Both Models?
Yes — but not for the same employees.
A company can use a PEO for domestic workforce management and an EOR for international hires. The models serve different purposes and operate in different geographies, so there's no conflict in running both.
What you cannot do is co-employ with an EOR. In co-employment, you and the PEO share the status of employer. With an EOR, there's no sharing — the EOR is the sole legal employer in that jurisdiction.
What you cannot do is co-employ with an EOR. In co-employment, you and the PEO share employer status. With an EOR, there's no sharing — the EOR is the sole legal employer in that jurisdiction.
Each employee falls under one of the two models. Your domestic team might be co-employed through a PEO. The EOR employs your international team members. Two separate arrangements, two separate employee populations, zero overlap.
Think of it this way: a PEO extends your existing employer status by sharing the load. An EOR substitutes for the employer status you don't have in a foreign country.
When It Makes Sense to Use Both
For companies with domestic and international employees, using a PEO and EOR in parallel often makes sense. For example:
- You're a growing SMB with limited HR bandwidth. A PEO takes on your HR tasks, managing domestic payroll, benefits, and compliance. When you're ready to hire internationally, an EOR enables you to do so without building infrastructure for, say, a single hire in a new country.
- You're in the midst of a global expansion, but you're not yet ready for local entities. An EOR allows you to test new markets without incurring the expense of entity setup. If the expansion into a particular country is successful, you can establish your own entity later — or continue using the EOR.
Here’s an example: A 45-person Austin software company uses a PEO for U.S. employees. They want to hire two engineers in Portugal and a sales lead in Singapore. The company’s PEO can't help the company employ internationally, so they partner with an EOR.
Result: 45 domestic employees remain co-employed through the PEO; three international employees are employed by the EOR. The company manages everyone as one team, but legal employment sits with different partners based on geography.
If you're currently using a PEO and ready to expand internationally, here's how to transition to an EOR.
Potential Pitfalls of Mixing Platforms
Running both arrangements is definitely manageable, but there can be some friction, including:
- Data fragmentation: Employee information lives in multiple systems — your PEO, your EOR, and possibly a separate HRIS. Reconciling payroll data or getting a clear headcount may require manual work.
- Payroll complexity: Your PEO runs domestic payroll on your schedule. Your EOR handles international payroll according to local norms — including different timing, currencies, and requirements such as 13th-month pay.
- Benefits disparity: Domestic employees employed via the PEO and international employees hired by the EOR may not receive identical benefits due to differing legal requirements. It's up to employers to create a global benefits package that meets the needs of all employees.
- Compliance gaps: Your PEO handles domestic compliance, while your EOR handles international compliance. However, some obligations — such as data privacy, IP assignment, and global policies — remain yours regardless.
You can mitigate these risks by:
- Using a central HRIS as your system of record
- Documenting which partner handles what, so there’s no confusion
- Reviewing both relationships annually, as your needs may change
- Building relationships with account managers at both platforms
How an EOR Like RemoFirst Simplifies Global Employment
For companies expanding internationally, an EOR removes barriers. You don't need:
- Legal entities in every country
- Expertise in local labor laws
- To calculate payroll in unfamiliar currencies
RemoFirst can act as the legal employer for your international team in 185+ countries. We handle employment contracts that comply with local law, payroll in local currencies, statutory benefits, tax withholding, and onboarding. You manage your employees' work; we handle the legal and administrative side, ensuring legal compliance.
If you already use a PEO for your local team, that employment relationship continues unchanged, while RemoFirst handles the management of your international team.
Ready to expand internationally? Book a demo to see how RemoFirst can support your global hiring. Pricing starts at only $199 per employee per month. We also offer global contractor management service for $25 per contractor per month.
