EOR vs PEO: What's the Difference, and Which Applies in the UK?

The difference between an EOR and a PEO is who the employer is. An employer of record (EOR) is the sole legal employer of your staff. A professional employer organisation (PEO) shares employer duties with your own company under US-style “co-employment”. UK law has no co-employment equivalent, so here your options are an EOR or your own UK company.

What is a PEO?

A PEO, or professional employer organisation, is a model that grew up in the United States. A business with its own US entity signs up with a PEO, and the two become “co-employers” of the staff. The PEO typically handles payroll, benefits and some HR administration. The client company keeps day-to-day control and remains an employer in its own right.

The key point is that a PEO needs the client to already have a legal entity in the country. The PEO doesn’t replace the entity. It sits alongside it and shares the load.

What is an EOR?

An employer of record is the only legal employer. It signs the employment contract, runs PAYE, holds the insurance and carries the statutory duties. Your business directs the work under a separate services agreement with the EOR.

Because the EOR is the employer, you don’t need your own entity in the UK. That is why EORs are used by overseas companies hiring their first UK staff. We cover the full picture in what is an employer of record.

Why doesn’t the PEO model work in the UK?

Because UK employment law is built around one employee having one employer for a given contract of employment. There is no recognised legal framework in the UK for two businesses to be “co-employers” in the way the US PEO model works.

That matters in practice:

• Statutory duties attach to the employer. PAYE, employer National Insurance, automatic enrolment into a workplace pension, the written statement of particulars, statutory sick pay and maternity pay all fall on the employer. They don’t split neatly between two parties.
• Employment rights run against the employer. If there’s a dispute about dismissal, pay or discrimination, the employee’s claim is against their employer. A “shared” arrangement doesn’t change who that is, and an unclear arrangement can make it harder for everyone.
• HMRC needs one PAYE scheme holder. Someone has to register as the employer, report each payment in real time and pay over the tax and National Insurance.

So when a provider in the UK describes itself as a PEO, it is usually doing one of two things: acting as the employer of record, or running payroll and HR administration for a company that is already the employer. Ask which one it is, because the legal consequences are very different.

EOR vs PEO: side-by-side comparison

	Employer of record (EOR)	PEO (US model)
Legal employer	The EOR alone	Shared: client and PEO as co-employers
Do you need your own local entity?	No	Yes
Recognised in UK law?	Yes, it’s a normal employer relationship	No equivalent co-employment framework
Who signs the employment contract?	The EOR	Typically the client, with the PEO as co-employer
Who runs payroll and tax?	The EOR, under its own PAYE scheme	Typically the PEO
Who directs the work?	You, under a services agreement	You
Typical use	Hiring in a country where you have no entity	Outsourcing HR and benefits in the US where you do have an entity
IP ownership	Needs an assignment clause from EOR to you	Depends on the co-employment contract

What are the UK options instead?

If you’re hiring in the UK, the comparison that matters isn’t really EOR vs PEO. It’s which of these fits you:

1. Employer of record

You have no UK company and want to employ one or a few people properly. The EOR becomes the UK employer and you direct the work. See our UK employer of record service.

2. Your own UK company, with payroll outsourced

You’ve set up a UK limited company (or plan to), and it registers as an employer with HMRC. You then outsource the payroll processing, HMRC filing and pension submissions to a payroll provider. Your company is the employer; the provider is a processor. This is the closest thing to what people usually want from a “PEO” in the UK. See payroll services.

3. Contractors

You engage people as independent contractors instead of employees. This can be right for genuine project work, but employment status depends on the real working relationship, not the label. Where the contractor works through their own company, the off-payroll working (IR35) rules may also apply.

How do you choose?

A few questions usually settle it:

Question	If yes	If no
Do you already have a UK company?	Payroll outsourcing, not an EOR	Keep reading
Are you hiring fewer than a handful of people in the UK?	An EOR is often simpler	A UK company may be better value as you grow
Do you need someone to start in the next few weeks?	An EOR is usually quicker	You have time to set up an entity
Will your UK hire be closing deals in your company’s name?	Talk to a tax adviser first, whatever model you use	Lower PE concern
Are you testing the market?	An EOR avoids setting up a company you might later close	A UK company signals long-term commitment

Watch for these when a provider says “PEO”

• Ask who the legal employer is. It should be one named company, and its name should be on the contract and payslip.
• Ask whose PAYE scheme the employee is paid through. That tells you who HMRC sees as the employer.
• Ask who holds employers’ liability insurance. In Great Britain, most employers must have it from the day they take on staff.
• Ask how IP is assigned to your company. If the provider is the employer, the IP route needs to be written down.
• Ask what happens on exit. If you later set up a UK company, how are staff moved across?

Next step

If you’re an overseas business hiring in the UK, “PEO” is the wrong frame. Decide whether you want to be the employer yourself through a UK company, or have an employer of record do it for you. If you’d like to talk it through, contact us with the role and timeline and we’ll tell you which route we’d suggest.