What is a PEO and Why is it Valuable to Global Businesses?
International expansion - it is the logical next step for many growing organizations. A new territory provides the benefits of a new market, new supply chains, new distribution channels and new talent pools. But at the same time, there are challenges of regulatory changes, time constraints, taxation obligations, onboarding struggles and HR-related legal requirements. So how do companies expand internationally while retaining compliance?
The answer is a PEO. Professional Employer Organizations (PEO) provide the support businesses need when expanding internationally, aiding in determining what global regulatory requirements will need to be satisfied in the expansion and how businesses can best go about setting up on foreign soil.
In this blog, we will be exploring an in-depth look at PEOs and why they are advantageous partners to work with in any global expansion.
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What Is a PEO?
“A Global Professional Employer Organization (PEO) is an outsourcing firm. It is a legal entity that operates as the Employer of Record for your organization. Through this arrangement, the PEO takes on the responsibility for all Legal, Compliance, HR, Payroll, Tax and Employee Benefits for your workforce in the host country. The Global PEO also removes the need for you to create a Permanent Establishment.”
Essentially, a PEO is a business that provides employee and financial management services during processes such as international expansion or mergers and acquisitions (M&A). They will give assistance with crucial obligations, such as:
- Entity setup and support
- Global immigration
- Payroll processing and management
- Global talent acquisition
- Benefits management
- Employee screening
- Global employment consulting
PEOs work to directly support and expand a business within a new territory, covering the main processes that will be required in these circumstances. For example, they can hire local talent to become employees of record in local entities, saving on the need for the strenuous task of entity setup. This also guarantees that payroll processing, taxation, benefits and insurance requirements are handled in-country by experts on local labor and business laws.
Things like taxation will be managed and deducted at source, including obligations such as social security payments and benefits, including medical, maternity, life and disability insurance, if required.
Types of PEO
While some may have heard of the term ‘PEO’ many do not realise that there are several forms, each displaying different relationships between the PEO itself and the client:
Administrative Services Organizations (ASO): These are similar to PEOs but do not utilize the co-employment relationship that PEOs traditionally do. Any tax and insurance are carried out by the ASO, but under the client’s Employer Identification Number.
Pass-through agencies: These are staffing agencies that act as Employers of Record for independent contractors, who do not become employees of the client.
Fiscal intermediaries: These specifically cater to healthcare professionals, acting as Employers of Record for those who serve disabled persons. This helps streamline the process of hiring them.
Umbrella companies: These are mainly found in the UK and act as Employers of Record for contractors. The contractor will become an employee of the umbrella company, but not the client.
Global PEOs: These are organizations that deliver PEO services in hundreds of countries across the globe, working with the bespoke knowledge of rules and regulations that vary from jurisdiction to jurisdiction.
The Secret Weapon For Businesses Looking To Expand Internationally
It is no surprise that businesses are looking to expand into lucrative new markets in foreign territories. These areas offer new business opportunities, new audiences and new chances to gain insights on how to develop products and services to appeal to greater numbers. Each area represents a unique opportunity.
To find out more about how this can be done, download our guide.
The Value of a PEO
We have explored how a PEO is an employment solution that provides companies with the opportunity to hire and onboard global talent in multiple countries around the world, without the need to create a foreign entity. But why do this in the first place? What kind of benefits does such a service offer?
Payroll is one of the most crucial aspects of a business to get right - on time, every time. Without a consistent, accurate payroll, staff will get disillusioned and angry.
However, paying overseas employees can be fairly complex. An organization may have payroll obligations in both their home country and the country of overseas employees. Imagine a company based in the UK with an overseas employee. This employee, who has never lived in the UK, will not be liable for UK taxes or UK-based securities contributions and they will not have a UK registered tax ID number. All this creates barriers to being on a UK-based payroll.
In most cases, that company will be required to set up a legal entity in the host country, which takes time, effort and capital. However, a PEO can act as an Employer of Record here, being able to organize and process payroll on foreign soil, on the company’s behalf. Essentially, working with a PEO makes overseas payroll tasks and obligations a lot more straightforward.
Ensuring HR Compliance
Employment law is not universally standard. It is complex, changing and sometimes subject to the effects of political relationships between countries. When a company expands and begins employing overseas, compliance needs to be seen as top priority.
For example, a hiring company must know about the specific regulations for hiring practices that may apply in a jurisdiction. Take California - in this state it is illegal for most employers to ask about the criminal record of job applicants before making an offer, a regulation known as ‘ban the box’. This is just one example of employment law that is directly specific to a jurisdiction - and there are countless jurisdictions in the world.
Compliance gets more complicated if an organization has employees in multiple locations. In-house HR teams are perfect at maintaining compliance with home regulation, but when it comes to foreign law, it can get difficult. A PEO is specifically aware and up-to-date with compliance laws in foreign countries, presenting a distinct security advantage for businesses who choose to work with them.
More Successful Recruitment
To gain the most out of international expansion, an organization needs feet on the ground as quickly as possible. Nobody wants to be caught in a situation where a market opportunity presents itself, but the business that wants to capture it is still a thousand miles away. International recruiting needs to be quick, compliant and successful.
PEOs help to streamline the process, finding employees and screening them to evaluate if they are the right fit - which is one less thing for HR to worry about. During recruitment, the PEO becomes an extension of an in-house HR team, supporting them through all aspects of the employee lifecycle.
The best Global PEOs can onboard a new employee within 24 hours, guaranteeing a super-fast expansion.
This does not represent the full value a PEO delivers. If you would like more information on why PEOs can help with overseas employment and expansion, read this blog.
And to explore the full value of a Global PEO, you can use our latest resource.
The True Value of a Global PEO
A PEO provides benefits for the following:
For managing a global workforce
For HR Directors and HR teams
When entering new countries
For limiting the risks of expansion
For maintaining regulatory compliance
To discover information and insights on all of these - the kind of key insights that businesses need when approaching international expansion - click the link below.
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