Do I need an employer of record or a PEO?

Maybe you’ve found the perfect candidate in Canada, or you’re looking to expand your operations into the Great White North. Either way, navigating all the employment and taxation laws on your own is anything but straightforward.

Without the right expertise in place, hiring cross-border could open you up to a world of legal and financial headaches.

This brings us to the two most commonly used services for international hiring for businesses like yours: PEOs (Professional Employer Organization) and EORs (Employers of Record).

But what exactly are they, and what are the key differences between them?

Here, we’ll outline the main features and benefits of PEOs and EORs to help you understand which might be the best fit for your business operations in Canada.

The Ultimate Guide to PEO - PEO vs EOR

Let’s compare EORs and PEOs

Let’s start with some straightforward definitions to ensure we’re on the same page.

Employer of Record (EOR) defined:

EORs are the legal, government-recognized employer (or legal entity) for your Canadian workforce, and assume all the associated risks and responsibilities as the employer.

The EOR’s name is what actually appears on the employees’ pay stubs and all Canadian tax and employment documentation, such as T4 and T2200 forms.

If your business doesn’t have a legal entity in a country (like Canada), EORs make it possible for you to legally employ and pay talent internationally.

EORs also manage your HR function for international employees, create employment offers and contracts, as well as handle payroll and benefits administration.

Perhaps most importantly, EORs are experts in HR compliance.

That means they have a comprehensive understanding of federal employment and taxation law, and should have in-depth knowledge of each Canadian province – as the laws, taxes and paid leave and employer requirements can vary greatly if an employee lives in Toronto versus Montreal.

Professional Employer Organization (PEO) defined:

A PEO, on the other hand, acts as “co-employer,” to you, the client. PEOs are used by businesses that already have a legal entity in Canada or another country, but who want help managing time-consuming, non-core business tasks like payroll and benefits administration.

When you go with a PEO, you shoulder more risks and responsibilities (employment law, health and safety compliance, paid leaves, etc.), than you would with an EOR as you are the legal employer.

For instance - when using a PEO, you would need to set up a legal entity and bank account in Canada. And if you aren’t generating your revenue in Canada, setting up that legal entity may not be possible.

Another example: If you decide to terminate a Canadian employee, you need to understand the justifiable reasons for firing with (and without) cause. And to avoid being potentially sued by the employee, you need to know how much and what type of severance is required by each province.

Here is a quick cheat sheet to help you understand the main differences between EORs and PEOs in Canada:

FunctionEORPEO
General HR administration - offers, documentationYesYes
Payroll and benefitsYesYes
Legal employer/entityYesNo
Co-employerNoYes
Provincially-compliant employment contracts and policiesYesNo
Comprehensive knowledge of federal and provincial employment lawsYesNo
Comprehensive knowledge of tax lawsYesYes

PEO and EOR day-to-day relationships with your business

Regardless of whether you hire a PEO or an EOR, you maintain control over all aspects of talent management, including:

  • Setting goals and managing performance
  • Day to day direction of work tasks
  • Approving vacations
  • Providing equipment and resources to employees
  • Instilling and reinforcing your company work culture

Both PEOs and EORs will manage payroll, benefits administration, as well as general HR duties and documentation on your behalf.

PEOs have their limits

When you choose a PEO, there tends to be more on your plate because you are the legal employer. That means, you need to understand all the risks and responsibilities of Canadian employers - both federally and provincially– and ensure you are in compliance.

A PEO might be able to advise you in areas like general HR compliance, but they aren’t likely going to have in-depth knowledge on employment law in each province.

EORs provide a fuller set of services

Working with a Canadian employer of record, in comparison, is a far more streamlined affair.

Your only worry? Making your talent productive and effective. As the legal Canadian employer, an EOR will ensure your business is always in step with evolving federal and provincial requirements. In addition, an EOR will help mitigate and reduce the legal risks that can come with international employment.

PEO vs. EOR - risk to your business and compliance

PEO: As a ‘co-employer’, you are responsible for staying in compliance with federal -and provincial -employment laws.

What’s more – you can be found liable or face massive penalties if any issues arise, such as unpaid taxes or employee claims. While a PEO in Canada can help you with compliance, you aren’t fully isolated from risk.

EOR: Your Canada EOR would assume full responsibility for staying in compliance with federal and provincial employment and tax laws. This helps minimize your business’ risk exposure should any issues arise. In fact, any EOR you bring on should have province-specific employee contracts and understand necessary policies and payroll requirements for any Canadian region where you plan to hire.

How do I decide which is right for my business?

Before deciding on whether to hire a Canadian PEO or EOR for your business, ask yourself the following questions:

  • Are you in a position (or do you have access to expertise) to manage multiple layers of federal and provincial employment law compliance?
  • How quickly do you plan to expand your operations in Canada? Is your intent to set up a legal entity within the next year, or are you strictly looking to add 1 or 2 talented Canadians to your roster?
  • How much bandwidth does your team have to manage the complications that can come with paying and managing international employees?

Bridgewater TI: Find top Canadian talent, we’ll handle the rest

Bridgewater Talent Integration offers comprehensive Canada EOR services designed to get you up, running and onboarding new talent in as little as one day.

Payroll: We have certified Payroll Compliance Professionals (PCP) that bring an intimate knowledge of all the latest federal and provincial taxes and deductions, including Canada Pension Plan, employment insurance and taxable benefits.

HR Compliance: We’ve partnered with top employment lawyers across Canada to ensure every contract follows federal and provincial laws, and that it is enforceable. So, you can hire with confidence across all Canadian regions and avoid legal and financial headaches.

Benefits Admin and Vacation: We work with major Canadian health and retirement benefits providers to provide comprehensive and cost-effective benefits packages. We also help you navigate the sometimes-complex local regulations around vacation, or protected leaves like maternity and paternity leaves.

Ready to streamline the way you add top Canadian talent to your organization?

Talk to us now