PEO vs EOR: What’s the real cost of hiring in 2026?

Hi, everyone. Alicia here from Employment Hero. And with today, we're talking about something that keeps founders and HR leaders up at night, the sheer weight of employing people in twenty twenty six. I am joined by my colleague, Ben Knight, who is head of Hero four sales. Ben, you've been saying that employment is essentially in a state of crisis for SMEs. It's a pretty strong word. Can you talk me through what that looks like?

Yeah. Absolutely. Definitely a strong word, but I think it's true. There's an awful lot going on for SME businesses at the moment, and particularly over recent times, where it's just not what it was when we kind of set out in the main aim of starting a business.

Right? So there's so many other things to consider when running a business rather than usually what you set out to do. So one of the key components behind that, I would tell you, is that whole admin ordeal that businesses have these days. So businesses want to hire and bring people on board and actually employ them.

There's a whole administrative burden behind that that wasn't there previously and not designed for small and medium sized businesses. And as part of Employment Hero's internal modeling, we've done a full report on this, and that actually came out and showed that businesses are wasting up to twelve point six billion annually on duplicate employment admin. Now that seems like a massive number, and it is. It's essentially like an invisible tax that businesses have that's not just a number on a spreadsheet, but it's the time founders always in terms of serving customers, building products, essentially what they set out to do and want to be achieving within their businesses.

And instead of doing that, they're stuck interpreting ten thousand pages of legislation, complexities around employment that wasn't there previously, and it's becoming more and more burdensome for employers as time goes on. And this isn't just a challenge locally, it's a global challenge for SMEs as well. So whether that's for Australian businesses trying to interpret the award system that's there to be able to process pay, whether it's New Zealand's Complex Relief Management System interpreting like the Holiday Act, or in the US you've got the health and benefits landscape, and each individual state as well has its own complexities, rules and regulations.

UK, you've got IR35 around contractors, which is becoming increasingly complex as well. So there's a lot of red tape that's a collective drag on the economy as a whole that's essentially contributing to that whole issue and problem.

Oh, wow. This is some big numbers. And speaking of another big number, I know you talk often about the difference between the salary and then a true cost to a business when it comes to an employee. And I think you use a hundred k base example. I'd love you to walk me through what that looks like in terms of the hundred k salary is actually closer to a hundred and fifty k when it comes to a true cost.

Yeah. Absolutely. It's one of the kind of key mistakes that businesses make as well is when you, like, kinda go in to offer a new employee and choosing the one hundred ks example, you go, okay, that's the salary, that's how much you're going to cost me. It's actually not the case, even just from a pure statutory on cost perspective, taking Australia for example, you'd have superannuation, which is twelve percent, you've got payroll tax that can range from four to six percent, depending on the state, workers' compensation that can vary as well, and typically businesses will also have a professional indemnity, public liability, employer's liability insurance as well.

That quickly inflates the total cost of running, just purely in mandatory minimum costs. New Zealand, you have KiwiSaver that can be three percent or more, ACC levy, the UK, National Insurance, pension, every country has its own complexities and they can range and go higher or lower depending upon the actual regulations that are put in place, and it changes year on year as well, just adding another thing in there for people to consider.

And that's all factored into not just the statutory cost, but you've got that whole seven ways of complexity that Employment Hero would try and frame it into to make it as simple as possible. So it's not just the statutory on cost, but you've got regulatory change that happens on a yearly, sometimes quarterly basis as well. There's the whole HR operations that you'd need to actually undertake that whole employment. There's the recruitment and onboarding process, if you're screening well quality candidates, there's a manual data entry in terms of running that whole recruitment process.

Not to mention the potential cost of a bad hire as well, of getting that wrong and how that can spiral and lead on to increased costs. The whole infrastructure behind being able to support it, so the different tech stacks you might be using, whether it's a recruitment system, HR system, payroll system, accounting system, that is costly and can kind of run up those costs even further. That risk and insurance piece that I mentioned around liability, indemnity insurances, and making sure that covers what you need as a business.

And that all filters into that additional cost. That's not even mentioning the risk factor, that if something goes wrong and you get those penalties for incorrect interpretations, awards, or pay, so yeah, really can be quite a bit more than that original one hundred ks salary.

Yep. Absolutely. And it's just wild to think that there are so many HR managers out there and founders that have to have all of this in their brain at the one time and are doing that manually.

I wanna tackle a couple of quick definitions with you. There are so many acronyms and different terms in this space. You've got PEO and EOR, labor hire, and these often get lumped in together. Can you help me understand each of them? What what do we define as an employer of record? What is an EOR?

Yeah, so think of an employer of record as almost like a professional middleman. So that allows a company to hire someone in a different country or state without actually setting up that legal entity there. So the EOR becomes the legal employer on paper, but you still manage the employee's day to day work.

So an employer or an EOR is essentially a service that takes on legal and administrative risks of employment, so you can focus on growing your team, whether that's locally or globally.

And then we've got a PEO as well, which is a professional employer. What do they do?

While an EOR is almost like a middleman for hiring where you don't have an office, a professional employer organization or PEO is more like a power up for a business that already exists. So in a PEO relationship, you enter in a co employment agreement, So, you hire the employees, but you and the PEO share the legal responsibilities of being an employer. So, some of the key benefits of that for SMEs include administration efficiencies, so whether that's HR and payroll, and that compliance peace of mind for labor laws so you can focus on running your business.

Yeah. Cool. And then what about labor hire? How is that different then again?

Yeah. So labor hire is essentially renting staff on a short term or project basis. So in this arrangement, a labor hire agency employs workers and then leases them out to the host employer, the client company, to fill immediate gaps in their workforce. Labor hire agencies often have high margins and control the rosters, but you have that flexibility to scale your business up and down as you ultimately need.

And then we have Heroforce. So this kind of includes all of the key elements of a lot of those different components, and then it's much more cost effective and a scalable solution for businesses. Right? Can you tell me a bit more about that?

Yeah. So here at Force is employment as a service. So if you're an existing employment Hero customer, you have access to this now, and that's where we're here to help you expand your business safely, quickly, and efficiently. Basically combining all those and making that problem as easy as possible for employers.

Let's talk through a few scenarios, because that always helps everybody understand and particularly my brain. So let's say I'm a fashion business in Sydney. I've got a couple of stores in New South Wales and an online business.

I want to expand what are my options within I'd think of Heroforce almost like, you know, like a power grid concept.

So this is where employment is evolving and essentially moving to. With Heroforce, you essentially get to plug into all those aspects of employment. So whether that's recruitment, payroll, or HR, it's all integrated into the one system. So you're combining those three key pillars of employment, and we can kind of service that whole section of it.

So if you're thinking about the scenario you mentioned, and it's kind of a seasonal expansion, kind of coming up to peak season, could be a stocktake, Christmas, or anything like that, you need to significantly increase the size of your workforce. But you don't want to get bogged down in all the paperwork, kind of constantly going through CVs, making sure people have the right to work, they are who they say they are, again, kind of fraught with risk as well to be able to do that. We just want them to get them started ASAP so you can do what you need to as a business. So through Employment Hero, you can search candidates who are pre vetted, already set up within Heroforce, so all the paperwork on that side is done for you.

And then ultimately bringing forward them and hiring that person through our Heroforce Employer of Record Service, and we'll deal with that complexity and compliance administration of the employment up to payroll in them, and they would still carry out their day to day duties as they would normally.

Amazing. Especially for retail businesses and anyone that's quite seasonal, being able to scale really quickly is is great and not having to get bogged down in all of that paperwork. I guess that really works well for seasonal businesses and anyone who needs to scale their workforce really quickly and not have to do all of that paperwork. And you can manage everything within the Employment Hero platform that you have set up already.

Yeah. Exactly right. So anyone who's already using Employment Hero, this why we're in your platform now, and you can start using this today. And if you're not currently using Employment Hero, then it's pretty easy to get set up as well, and you can start using Heroforce.

What about if we wanna expand in a different way? So let's say I'm looking at opening more stores maybe across the country. How does that help?

How does Heroforce help me with this?

Yeah. That that's that's another one where it's a key aspect that we can help and and solve for employers as well. So if you're looking to expand into different states within Australia, for example, they have different rules and regulations, different payroll tax as well can sometimes be in place, different public holiday days depending upon each state, and that's something that we can help kind of streamline and manage that whole process as well. So whether you're looking, it could be additional insurance costs to cover employees and the laws you need to comply with, we're already set up in every state and territory, so you can enter into that, the Heroforce model with ourselves. We'll take care of the employment paperwork, HR, payroll, and you can just focus on the pure expansion itself as well. Whether that's Australia or other countries as well, we'll we'll have different rules and regulations from state to state.

Amazing. I mean, it does sound like a great way for businesses to be able to test new markets without having to go through the full setup themselves.

And you mentioned something about globally. So if we do wanna do this globally, let's say, I'm a tech business. I'm looking to expand into the US, launching a product over there, or maybe even building an offshore support team within somewhere like the Philippines.

I'm sure there's lots of regulations and stuff to to figure out. So how does Heroforce help with that?

Yeah. So so the global expansion piece has has been huge as well, something we've been working with our clients for for a number of years now and and been a game changer for SMEs. So say for example, like you mentioned, like a tech business looking to launch in the US, you've got like a really good product market fit and you want to go, okay, we're going to launch this. Typically, this could be a really time consuming, costly process to go through all that, you know, set up an entity, get a health insurance provider, make sure you're across the different states and regulations involved in that as well. So we've seen sometimes that can take three to six months. We've set up costs reaching up to fifty ks in some aspects as well.

But with Heroforce from a global standpoint, you're able to get someone onboarded and started within that country. We usually see within kind of one to two weeks if you're identifying someone to bring on board as well. So it can be really quick in terms of onboarding a new person, and you don't have all that upfront setup costs and also additional risk that if something was to go really wrong, that that would be on yourselves as well.

It's not risk free, but a definitely risk averse approach to expanding globally as well.

I guess three to six months is a very long time for anyone, especially small SMEs and founders or any HR managers to go through all of that. It's definitely sounding like their secret weapon.

And I guess it's not just retail or tech that this works for. Right? There are a number of other businesses and industries that we see this working for both locally and then looking to use that global service as well.

Yeah. A hundred percent.

Well, COI particularly, if you're looking at kind of hospitality workers or health care, anything in shift based workers as well, we're seeing a lot of adoption from our clients and being able to support that whole process.

That's becoming increasingly complex, again, around awards, classifications and risks as well with hiring the right people and making sure they've got the requirements in place to be able to work within the business. So that's something we've really been able to support with, that kind of seasonal high volume hiring as well, again, being able to kind of have that workforce ready to go and you've got that peace of mind that you know that it's compliant and you're able to employ those people and carry out what you need to do. And then whether it's employing globally from a knowledge worker base as well, so whether it's tech, marketing, ops, admin, or finance based roles, and it needs someone to enter another region that can support almost like a round of sum model.

And that's something we've been able to really help them with businesses forward. It usually would be for enterprise level businesses where they've already got that set up of multiple entities or or what a cost base to be able to go and do this quickly. We're able to support and, yeah, kind of be that supercharger for SMEs.

Can you let's recap the top benefits of Air Force for anyone listening, and then we'll move on to some AI questions. So hit me, Ben, with those top benefits.

Yeah. Sure. So I think you've probably narrowed it down to kind of four key main benefits. So you've got that whole payroll interpretation, right, whether that's awards in Australia or the kind of complexities behind that, make sure people are paid correctly. So we take on that burden of classifying the employee and ensuring that they're paid correctly according to latest reforms or laws or whatever that may be in that country. You've got predictable costs, so you'll get one invoice in the local currency and we'll handle the local tax, pensions, super KiwiSaver that's applicable for that country and all the statutory filings that are necessary with the local government. So you don't have to deal with that at all, you don't have to deal with payroll, you just get one simple invoice to pay, which is super straightforward.

There's a lot of risk absorption as well, so if there is any payroll errors due to our interpretation based on the correct data that we've been given, then Heroforce takes that responsibility in terms of we've done that administration and compliance piece incorrectly.

There's also that that kind of leads into that overall shared responsibility as well, right? So it's not just solely on you as the employer anymore to make sure absolutely every aspect of employment is done correctly.

You still handle that kind of culture, daily direction as you would normally, but we handle the kind of formal disciplinary or termination