[Dramatic Changes in the Japanese-English Bilingual Labor Market in the US] 7. HR Outsourcing – PEO and EOR

Many are already familiar with PEO and EOR. But what exactly is the difference between a PEO (Professional Employment Organization) and an EOR (Employer of Record)?

They are both a third-party HR outsourcing providers that helps companies manage their global forces. PEO is often translated in Japanese as “習熟作業者派遣” (Skilled Worker Dispatch), but whether this expression accurately conveys the concept is questionable. A literal translation would be something like “Professional Employment Organization,” but this, too, can be hard to understand. At our company, we use the more straightforward term “Outsourced Employment Services” or OES.  In this arrangement, the client company assumes supervisory responsibility, while the PEO provider holds employment responsibility, meaning both parties share joint employment responsibilities for the dispatched employee, similar to general staffing services.

However, the key difference from regular staffing services is that PEOs typically cover long-term employment and offer various benefits, like those available to the client company’s full-time employees. This includes regular payroll, various employment-related taxes, unemployment insurance, workers’ compensation insurance, 401(k) eligibility, paid leave, and recruitment-related tasks. It is an ideal service for multi-year client company projects. Although Japan’s legal restrictions prevent as much freedom in PEO usage as in the United States, a Japanese-style PEO model does seem to exist.

On the other hand, there is EOR. Its basic services are like those of PEO but differ in employment jurisdiction. When the client company issuing directives is based in Japan, but employment takes place in the United States, it falls under EOR. Specifically, this service is highly beneficial in situations such as when a company is newly expanding into the U.S. and the local entity’s structure is not yet established, or when the primary business operations have concluded, yet maintenance is still needed after the local entity has been dissolved. Conversely, if the directing company is in the U.S. and employment takes place in Japan, the service can be provided by a company licensed for Japan’s worker dispatch business.

Written by Masato Fujihara, President
Interesse International Group
Came to New York as an expatriate for an HR company in January 1994.  Became independent in 1996 and started own business in defiance of return-to-Japan order by the company.  Currently, Interesse International Group has 11 locations in the United States and established a Japanese subsidiary in 2022. With 30 years of knowledge and experience in the HR industry, Interesse International Group delivers practical information to clients.