Although the terms are sometimes used interchangeably, EOR and PEO are not the same – particularly when it comes to employment responsibility and legal structure in China.
1. Employer of Record a.k.a. EOR
A China Employer of Record legally hires employees on behalf of your company. The EOR is responsible for:
- Signing the labor contract
- Handling payroll, taxes, and social security
- Ensuring legal compliance with Chinese labor laws
- Managing onboarding and termination processes
The client company directs the employee’s day-to-day work but doesn’t serve as the legal employer.
2. Professional Employer Organization a.k.a. PEO
A PEO enters into a co-employment relationship with your business. While you remain the legal employer, the PEO assists with:
- Payroll processing
- Benefits administration
- HR support
- Regulatory compliance guidance
Unlike EOR, a PEO usually requires your company to have a registered legal entity in China.
Pros and Cons for Businesses
EOR (Employer of Record)
Pros:
- No need to establish a legal entity in China
- Fast market entry and talent acquisition
- Full compliance with local labor and tax regulations
- Reduced HR and administrative burden
Cons:
- Less control over employment terms
- May not be suitable for long-term or large-scale operations
PEO (Professional Employer Organization)
Pros:
- Retain full legal control over employees
- Shared HR responsibilities reduce administrative workload
- Better suited for companies with an existing entity in China
Cons:
- Requires a registered legal presence in China
- More responsibility for legal compliance and liability
How to Choose the Right Model?
When deciding between a China Employer of Record and a PEO, consider the following factors:
- Do you have a legal entity in China? (If not, an EOR is typically the better option for hiring legally)
- How fast do you need to hire? (EORs enable quick onboarding without registration delays)
- What level of control do you need? (If maintaining direct employment relationships is important, a PEO may be preferable)
- What is your risk tolerance? (EORs take on more legal liability, reducing risk exposure for foreign businesses)
- What is your growth strategy? (For long-term operations, you may start with an EOR and later transition to a PEO or in-house HR model after setting up a local entity)
Conclusion
Both EOR and PEO models offer viable paths for managing HR, payroll, and compliance in China. The right choice depends on your business structure, growth timeline, and resource availability.
For companies looking to enter China quickly and without establishing a local entity, a Chinese employer of record provides a low-risk, high-compliance solution. Meanwhile, a PEO may be better suited for businesses seeking deeper operational control with a formal presence in the country. Choosing the right model is not just about HR – it’s a strategic decision that influences your entire market entry approach. China Payroll is here to help your business expand its operations in China. Contact us to learn more about our services!
