Too Good to Be True: PEO and EOR

Too Good to Be True: PEO and EOR Red Flags  

When companies choose to work with a Professional Employment Organization (PEO) or Employer of Record (EOR), they put a lot of trust in their hands: the care and payroll of their most important asset, their employees. Employment partners that deliver exactly what they promise, reliable payroll, ongoing support, and compliance, are an incredible asset to companies. But when PEOs and EORs do not deliver, it can have dire consequences for employees and employers alike. In this article we will outline the core responsibilities of PEOs and EORs and red flags to watch out for when you are choosing one to work with.  

What is PEO?  

Professional Employment Organizations (PEOs) help companies expand their teams quickly and compliantly, by taking the administrative aspects of employment off their hands. PEOs do this through outsourced Human Resources services, including managing payroll, providing health insurance and benefits, and ongoing support. PEOs are a great option for companies that want to hire employees or contractors directly but outsource administration of payroll and benefits.  

What is EOR?  

Employer of Record providers (EORs) offer the same services that PEOs do, but with the added benefit of being able to hire employees on your behalf. This allows companies to expand into new markets without having to open a local subsidiary and accounts. EORs are a great option for companies that want to hire internationally, or outside of their home district, and do not want to open a full local office.  

Consequences of Working with the Wrong Employers of Record or PEO  

Both PEOs and EORs handle confidential employee data and deliver ongoing compliance and payroll services. It is their job to ensure that employee data is kept secure and that they are adhering to all local payroll laws. When they get it wrong, the consequences for your business and your employees can be serious, including audits, worker misclassification investigations, back taxes, fines, and lawsuits from unhappy former employees.  

What Are Employer of Record Red Flags?  

When it comes to choosing a PEO or Employer of Record, much of the selection process is like picking any other professional service: you should identify EORs that operate where you want to hire, that offer the core services that your company needs, and that have competitive pricing and a good reputation. Red flags to watch out for include:  

Lack of Reputation or Established Presence 

Many startups and new businesses deliver incredible services; however, most new businesses do go under. Because working with a PEO or EOR involves a long-term commitment, potentially as long or longer than your employee’s tenure, your employment partner should be able to demonstrate experience and stability. You do not want to entrust your team to a company that is still in the experimental phase.  

Lack of Privacy and Data Security Policies 

Every professional service or SAAS (software as a service) you use should have a clear and publicly available set of privacy and security policies. These policies should cover marketing, employee and business data and explain clearly what set of laws they are complying with (e.g., PIPEDA, GDPR) and list any certifications they have achieved.  

Unusually Short Onboarding Process 

While there are always market leaders, beware professional service providers that claim to be able to get you set up much faster than their competitors can. Short timelines can mean cutting corners, especially when a lot of data is being collected from disparate sources, as is the case with outsourced employment. Not only does it take time to pull together all the employee information to get your worker fully onboarded into all systems (payroll, external benefits, retirement plan, etc.), but local employment standards may also have rules for candidates to have time to duly consider your offer.  

These are some of the most common red flags when assessing a new professional service. However, because legal compliance is such an important part of what EORs provide, you should pay special attention to how they describe the components of payroll, onboarding and hiring requirements, and how they deal with termination. Red flags to watch out for include: 

One-Size-Fits All Contracts and Pricing 

Employment outsourcing is not like buying a CRM. Not only is your use case unique, employment and tax laws vary from country to country, and even from region to region. The employment contracts your candidates’ signs in one country will be different in another, and so will your responsibilities to them. Your PEO or EOR should have distinct contracts, pricing, and even procedures for different countries. 

Lack of Rate Transparency (Including Discounts!) 

As the customer, you should be able to understand every part of your rate. Discounts too should be transparent, and not applied to the payroll portion of their quote. A prospective PEO or EOR should be able to communicate exactly what their fees cover and what they do not. Payroll and EOR quotes can include taxes, worker’s compensation, health insurance, retirement matches, and agency fees. Those fees should cover payroll processing, pay stubs, tax forms, direct deposit for your employees, remittances to government agencies, corrections, customer service and HR support.  

Full Self-Onboarding 

Hiring any employee with just three easy clicks sounds wonderful, right? But beware of overly simplified onboarding processes for your new hires, even if they are contractors. A fully self-managed onboarding system means that you do not have support; no one to ask about worker classification, permanent establishment, or local market standards, and no one to review your contract and ensure it is compliant for this specific worker. All of which can be costly mistakes.  

Minimal Presence Where You are Hiring 

In the previous section we covered why it is essential to look for PEOs and EORs with an established reputation and demonstrable stability. A related dimension is that your employment partner should have a strong presence where you are hiring. An agency that primarily operates elsewhere may not have customer service staff in-country to assist your employees with payroll problems, or HR staff to advise you on transitions, terminations, and other employment matters. Some global providers that claim to operate everywhere do so through a network of subsidiaries, not only increasing your cost, but putting a hidden layer of service providers between you and your employees.  

How Canadian Payroll Services Can Help You Hire in Canada  

Canadian Payroll Services provides PEO and EOR services to global companies hiring in Canada. We specialize in just one country, allowing us to deliver unmatched expertise in Canadian employment law, payroll, and remote Human Resources. Whether you are hiring one worker or twenty, we can help you expand your team in Canada quickly and compliantly and minimize your employer risks throughout the whole employee life cycle.  

Want to learn more about how we can help? Get in touch!  

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