An EOR becomes the sole legal employer of your workers, taking on full compliance responsibility. A PEO creates a co-employment arrangement where you and the PEO share employer status and responsibilities. EOR is the standard model for international expansion (hiring where you have no entity). PEO is mainly used domestically, particularly in the US, for HR outsourcing alongside your existing entity.
Legal employer status
This is the fundamental difference. With an EOR, the EOR is the sole legal employer. The employment contract is between the EOR and the worker. You have a service agreement with the EOR. The worker is the EOR's employee on paper and yours in practice.
With a PEO, there's a co-employment relationship. Both you and the PEO share employer responsibilities. You maintain your own entity and the worker is, in a sense, employed by both organisations. The PEO handles specific HR functions (payroll, benefits) while you retain others (hiring, firing, daily management).
For international expansion, this distinction is decisive: you can't enter a co-employment arrangement in a country where you have no entity. PEO requires you to already have a legal presence. EOR doesn't.
When to use each model
Use EOR when you're hiring in a country where you don't have an entity and don't want to create one. This is the core international expansion use case. EOR gives you the ability to employ compliantly from day one, without any corporate infrastructure in the target country.
Use PEO when you already have an entity but want to outsource HR administration — payroll processing, benefits management, HR compliance. This is primarily a US model where PEOs serve as a shared HR back office for small and medium businesses.
In practice, if you're reading this because you're expanding internationally, EOR is almost certainly the model you need.