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Introduction

 

The world is changing. Businesses are growing, enterprises are expanding, and markets are becoming globalized. But what does this all mean for businesses? Well, that all depends on how you and your organization choose to approach this changing world. Should you choose to remain a domestic operation, then it might be as simple as nodding your head and saying something along the lines of, “business as usual!” But, if you plan to become one of those growing businesses or one of those expanding enterprises, then you might have your eyes set on that global market that is becoming ever more dependent on international businesses.

If you choose the latter, then you might be faced with a critical decision as you plan your international expansion. First, how do you plan to hire employees overseas? Will you simply hire domestically and inform your new employees that they’ll be based in a newly acquired office space in Berlin? London? Moscow? Paris? Or do you instead hire professionals who are based in those cities? And if so, how do you proceed?

Does the responsibility fall on your HR department?

Do you require your HR department to instantly become aware of the various rules, regulations, and employment standards that govern employment in international cities virtually overnight?

Or is there an easier way to onboard international employees, while allowing your HR team to remain focused on their domestic duties?

In this comprehensive eBook, we’re going to find out if there’s an easier way to expand your business into the international marketplace. At the end of the day, human capital is always the most important type of capital for businesses. So, as you plan your international expansion, you’re going to have to make the critical decision of how you choose to employ and leverage your human capital. And more than likely, that’ll come down to working with a Global Employment Company (GEC), and a global Professional Employment Organization (PEO).

But what exactly does a GEC do? What about a PEO? In this eBook, we’ll parse the differences between these two types of employment organizations and provide you with everything you need to know to make sure that you make the right choice when it comes to your global expansion. From there, you can expect to take away several benefits from one of these organizations in particular, so that you can quickly move forward with your expansion plans and ensure that you’ve made the right choice.

So, if you're ready to get started, let's begin with Global Employment Companies.

What is a Global Employment Company?

If you plan to set up an expansion overseas, then the concept of a borderless workforce is certainly coming into your discussions. For your organization to succeed overseas, you’re going to need to determine an effective way to hire, train, onboard, and protect your employees who will go on to build your new expansion project from the ground up. The talent market is competitive enough domestically, so just think about how much more competitive it’ll be to fight with companies from multiple countries to attract high-end talent to your organization.

A Global Employment Company (GEC) has the sole purpose of helping businesses in the international marketplace acquire talent. If you think that sounds like a PEO, you aren’t wrong. While the two are similar, most expanding companies set up their own GEC. How is that possible, you ask? Well, let’s take a deeper look at what globally expanding companies are really doing here.

What Exactly Is a Global Employment Company?

A GEC is an incorporated entity that forms as part of a company’s group structure. From there, the GEC can perform various functions related to the employment, salary and compensation, and benefits of international companies. In addition, it can simplify and centralize the operational processes of a multinational company with an international employee population to meet related business needs and talent requirements.

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Multinational Companies and Multinational Workers

“Multinational companies increasingly have international mobile employees (IMEs) who perform services in more than one country, other than their country of citizenship, during a single taxable year.”

Thanks to The National Law Review, we can gain a little more insight into what companies actually use GECs for. They go on to say, “A Global Employment Company is an entity established by a multinational company to employ its IMEs. In effect, the GEC serves as a leasing company that is responsible for the employment, compensation and benefits, immigration and income, and social tax matters for IMEs.”

So, essentially, a GEC is an entity that is set up by the multinational company looking to expand internationally. In effect, you’ll incorporate your new operation and establish this leasing company to manage salaries, benefits, and other employment related issues within the country that you’re expanding into. This helps to ensure that everything is set up legally both in your home country and in your host country, which is often the most difficult and confusing aspect of expanding overseas.

What Are the Real Benefits of a GEC?

When it comes down to it, there are several key reasons why a business would want to establish a GEC in a host country for the purpose of international expansion.

  • International mobile employees are treated with equity.
  • Your organization gains comprehensive internal control over employer and employee compliance requirements.
  • Your GEC can be uniquely established to leverage beneficial tax and social security locations, ultimately improving your bottom line.
  • A GEC can easily simplify your global mobility administration, making it easier to manage your international workforce from overseas.
  • Establishing a GEC means that you’re also establishing a mobility P&L. This will help to manage costs more effectively in the long run.
  • Your GEC will allow you to minimize establishment exposure permanently. Your organization will be better positioned to implement change organization-wide.
  • Instantly align your talent with the unique opportunities that you’re given. Pave the way for a global reward structure with a GEC.
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As you can see, there are several reasons for why you might be interested in opting for a GEC. But at the end of the day, it might not be as beneficial as you might think. In fact, establishing your own GEC may be much more trouble than its worth.

What if we told you that there could be different solution —one that wouldn’t require you to incorporate your company overseas, and one where you could essentially outsource everything from your talent acquisition, hiring, onboarding, and HR all through a single, comprehensive entity?

Wouldn’t that potentially sound much more appealing?

Where GECs Fall Short

Before we move into the next course of discussion in this eBook, let’s talk a bit more about the shortcomings of a GEC. First, GECs can be quite expensive. Remember, establishing your own company along with a GEC means more money spent. Depending on how you choose to use your resources, it might simply be more cost-effective to formally incorporate and do things on your own right from the start.

Let’s also talk about the potential for losing control. Think about it: your HR team handles all aspects of employment for your business, and then you suddenly tell them to hand over their job responsibilities for your international expansion. In this case, you might end up with some frustrated employees who might even feel insulted by your choice to allow a third-party to handle employment and payroll responsibilities for your overseas operations.

And not only that, but it’s difficult to ensure whether your business strategy is seamlessly aligned to that of the GEC, making for a potentially difficult challenge to overcome.

Depending on your available resources, it just might be more beneficial for you to try to set up your employment strategy overseas all on your own, without having a local entity to assist you in that endeavor just for the sake of maintaining your business strategy.

As you can see, there are certainly some pros and cons of setting up or enlisting the help of an established GEC when planning an international expansion. But the difference between a GEC and PEO comes down to one thing—something that we’ll discuss a bit more later in this eBook.

For now, let’s take a deep dive into Professional Employment Organizations in the next chapter.

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What is a Professional Employer Organization?

In the previous chapter, we broke down the definition of a GEC down to its fundamental building blocks. From there, we looked at the key reasons why organizations and multinational companies seek to establish their own GEC or partner with one overseas, and we also revealed some of the negatives that could result from your decision to work with a GEC when planning your international business expansion.

In this next chapter, we’re going to dive head-first into Professional Employer Organizations (PEOs), which stands as the option with the most benefits when compared to GECs. Throughout the following sections, we’ll look at the core functions of a PEO in terms of what they do, how they do it, and how it can impact your business.

So, what exactly is a Professional Employer Organization (PEO)?

A PEO is an entity that has the capability to provide employee management services, administrative assistance, and compliance strategies for multinational organizations, businesses, and institutions operating outside of their domestic jurisdictions. In other words, they provide virtually everything from talent acquisition, to payroll, to benefits, to employee rights protections and employee management for a fee, all while your HR team focuses on the core of your employee relations back at home.

Essentially, a PEO is a legal entity that stands as the Employer of Record for your multinational organization. This ultimately grants the entity the permission to hire, manage, and pay taxes for your organization within your new host country on your behalf, without the need for your HR or administrative staff back at home to get involved and bogged down with foreign bureaucracy.

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Working With a PEO Makes It Easier to Launch Your International Operations

When you first start a business, nothing can be more important than getting to know the market in which you’ll be located. Not only does this include the market niche in which your business is situated, but in the very literal sense of the local, regional, and national market that you’ll be looking to exploit. When you plan to launch an international operation, it is just as critical to get to know that market, too. While there is certainly some truth to that, the fact of the matter is that working with a PEO makes it easier to launch your international operations because you won’t need to learn everything about this new foreign market.

In essence, your PEO will be responsible for everything from payroll and taxes, to benefits, compliance, and employee protections for your new host country. This means that your HR staff and administrative staff won’t be required to dig up every piece of information related to “how we do things” overseas, while also maintaining their day-to-day responsibilities back home.

With a PEO, you can get your new operations up and running much faster because you don’t need to become an expert in this new market—at least in terms of employment. Assuming you’re already a market expert in terms of why you chose to expand to this new host country, but that doesn’t have nearly as much fine print as employee relations does. With that in mind, it’s clear to see that partnering with a PEO will give you more time to focus on the most important aspects of your new expansion endeavors, while ensuring that all the legalities that come along with hiring international workers in a new international market are all taken care of.

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With a PEO, You Won’t Be Required to Establish a Legal International Entity

In the previous chapter, when referring to Global Employment Companies, we spoke about the need to establish or, essentially, incorporate your business overseas in the new host country. When you work with a PEO, this simply isn’t necessary—another big benefit that allows you to get your operations up and running rather quickly.

Remember, establishing a foreign legal entity isn’t exactly a simple or seamless experience. It can be costly, it can certainly be time-consuming, and it almost always comes along with some serious challenges and roadblocks that could be more trouble than its worth. By partnering with a PEO, your incorporation in your home country is more than enough to move forward.

Instead, the PEO will act on your behalf in your new host country. This means that you can move past those confusing complexities that revolve around the various employment rules, laws, regulations, and restrictions, along with compliance requirements and other bureaucratic necessities within your host country. From there, your PEO can seamlessly hire full-time and part-time employees on your behalf to manage your new company, while you sit back and watch your team grow before your very eyes.

What about the potential for loss of control?

With a GEC, that’s always a possibility. With a PEO? Not a chance. When you partner with a PEO, you’ll always maintain comprehensive control over how your staff members are organized and structured, and how their tasks are delegated both at home and abroad. And from there, your PEO will handle administration.

Compliance Doesn’t Have to Be Complicated

Compliance is often found in tricky waters that are difficult to navigate—even domestic compliance requirements. In fact, upwards of 30% of employers are fined for compliance-related issues every year! Now, could you imagine having to navigate the tumultuous waters of compliance requirements at home and abroad? That could quickly turn into a headache for your HR and administrative staff. Thankfully, compliance doesn’t have to be complicated. By working with a PEO, you can see just how simple it can be to keep your eye on compliance at home while your PEO keeps everything in check overseas.

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It’s also important to consider the fact that international employment compliance is entirely different from adapting to the local culture, customs, and legal systems of your new host country. Every city is different, no matter where you go, and that means that you’ll be responsible not only for nationwide compliance, but for complying with regional and city compliance requirements as well.

If, for whatever reason, you decided to take matters into your own hands and forgo the assistance of a PEO, you’d be responsible for ensuring compliance in your domestic country, domestic state, and domestic city, in addition to your host country, host region, and host city, all at same time. And in the likely event that something goes wrong, you’d be hit with fines and, potentially, legal action that could bar you from doing business in that particular host city, region, or country. All of which would spell disaster for your international expansion endeavors.

PEOs Make It Possible to Dip Your Toes Before Diving In

For far too many businesses, their international expansions either fail to live up to expectations, or they fail altogether because there wasn’t enough demand for a product or a service. And no matter how much market research you do, you’re never really going to know just how successful your idea will be until you get into your new market.

If you choose to expand internationally, you can go about it by formally establishing your organization as a legal entity by incorporating in this new host country. This is a time-consuming process that can be quite expensive and complicated—and it’s also permanent. On the other hand, you can simply maintain your domestic incorporation and work with a PEO to test the waters. Because you wouldn’t exactly be establishing a legal entity, you’ll be able to present potential investors and stakeholders with a clear exit strategy should things go south. And should they go south, your PEO is responsible for your international workforce, not you.

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PEOs Allow You to Expand Your Business—Not Your HR Team

Because your PEO will be hiring employees on your behalf, you won’t have to worry about bringing on new HR staff members to handle things like recruitment, training, and onboarding—something that many businesses end up being forced to do when expanding. Think about it: if you have a staff of 100 people in London, but then choose to open another operation in Manchester with another 100 people, but you only have four HR managers, it might be quite difficult for those four managers to take care of their day-to-day responsibilities while recruiting, interviewing, screening, hiring, training, and onboarding 100 additional employees. So, more than likely, you’d be forced to bring on at least 2 more HR managers to help aid in your expansion process.

And if you were expanding internationally, you’d be forced to expand your HR department too, but not if you work with a PEO. Your PEO would simply handle all the tasks that your HR and administrative staff would handle. You can say goodbye to the often cost-intensive and time-consuming process of establishing a legal international entity and instead, allow your PEO to deliver virtually instant savings on both cost and time.

From there, you can spend more time focusing on how you plan to accomplish your international expansion goals, with predictable HR expenses already factored into your budget well in advance. Not only does this give you a stronger ability to remain on-budget, but it allows you to expand your business without overloading or expanding your HR team. If you ask any multinational company that decided to expand without the assistance of a PEO, that would be considered a miracle.

A PEO Is More Than Just an Outsourcing Solution

Sure, any company can simply establish their own international legal entity and hire a recruitment firm to acquire talent. But a PEO is so much more than just an outsourcing solution. It’s a comprehensive system designed to take the weight of international employee management off your shoulders so that you can begin taking advantage of your international expansion endeavors faster, with less risk, and with more potential for a serious return on your investment. That’s just the fundamentalswe haven’t even gotten to the benefits yet.

Let’s explore those in the next chapter.

Which One Should You Choose?

Now that we’ve been able to parse the differences between a GEC and a PEO, you should be able to see the clear benefits that exist for a PEO. Although GECs have some important points to consider, a PEO simply offers you more flexibility, more safety, less risks, and a higher likelihood of success. That’s exactly what every business owner wants.

It’s clear that enlisting the services of a PEO to assist you in establishing your international expansion plan is your best plan of action. Instead of spending time focusing on incorporating in your new host country, you can simply launch your expansion business and allow the PEO to handle staffing, training, and general employee management. And while the previous chapter might have felt like we were simply listing benefits, we weren’t. We were simply describing exactly what a PEO is and what it can do. It just happens to be beneficial in more ways than one.

In this chapter, we’re going to talk about the key benefits that many businesses can take advantage of when partnering with a PEO. Let’s take a look!

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Administration Becomes Simple

For all your employees, the number one thing on their mind is almost always benefits—how will they get them, how much will they have to pay for them, and when can they expect them? No matter what industry you’re in, how big or small your workforce is, or what country you plan to operate in, benefits are always going to be critical. With a PEO, administering benefits doesn’t have to be your top priority because it’ll all be taken care of. Essentially, your PEO will pave the way for streamlining the ways in which your employees receive and access their most important benefits like paid time off, retirement benefits, health insurance, and others.

File Taxes the Right Way at Home and Abroad

No matter what country you’re based in, filing taxes is always a stressful undertaking. But when you work with a PEO, you don’t have to stress out about tax season. Instead, your PEO will take comprehensive control over your international taxes. From preparing your taxes to filing them, you can rest assured knowing that your taxes will be filed accurately and on time. Not only does this make it easier for you to manage your international operations, but it’ll also take a load off of your administrative staff who will already be bogged down with your domestic taxes.

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Managing Claims Doesn’t Have to Be Difficult

If you own a business that employs workers, then it’s virtually impossible to avoid having a claim filed against you. After all, accidents happen, and part of owning a business is knowing what you’re liable for. Luckily, when you work with a PEO, they can help you construct a comprehensive workers compensation management plan that doesn’t hold you liable or accountable, should an international worker become injured on the job or file a claim against your organization. Remember, because you’re not a legal entity in that host country, your PEO becomes the Employer of Record (EOR), ultimately taking all those responsibilities off of your shoulders. This is something that could make a world of difference when it comes to insurance claims.

Compliance Compliance Compliance!

Compliance is something that we spoke about quite extensively in the previous chapter, but it’s still so important that we’d like to mention it again. Essentially, working with a PEO means that you’ll never have to even think about international compliance as long as you continue working with that PEO throughout your international operations. Remember, your PEO is your Employer of Record. In other words, your multinational workforce isn’t employed by you, but they’ll be employed by your PEO on your behalf. That means that all the compliance requirements that you’re forced to adhere to domestically—and in the countries in which you’re incorporated—will no longer be a worry since don’t all those responsibilities are now that of the PEO.

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Connect With a New International Network

The chances are high that if you’re enlisting the assistance of a PEO to help you manage your employment and staffing needs abroad, then it’s likely that you’re fairly new to international business. This means that you likely don’t have a ton of connections overseas, and you certainly aren’t part of an extensive network of vendors, suppliers, contractors, distributors, and other related potential business partners that are often necessary to ensure the success of your operations.

But when you choose to partner with a PEO, you can open yourself up to a world of new opportunities. Most PEOs have an extensive network of other businesses they work with. This means that you can potentially open your business up to new partnerships from all around the world, which could then point you in a new direction for future expansion plans.

This is an important factor to consider because the only way to succeed in the international market is to embrace it. You can’t simply expect to expand into a new host country and do well all on your own. Besides taking time, it will also take a network of support—the exact same support system you needed back in your home country. A PEO makes it easier to break out into a network when you’re new to a market.

The Choice Is Yours to Make — But It Should Be a Simple Choice!

As you can see, the benefits of choosing to work with a PEO are plain and simple. Whether you’re looking for ways to branch out into new international markets without having to formally incorporate your organization in a foreign country, looking to manage an international expansion project without forcing your HR and administrative teams to work on overdrive to learn new compliance requirements, or looking for a seamless expansion process that provides investors with a palatable exit strategy, working with a PEO is a must.

All in all, the best way to give yourself the most amount of control, cost certainty, and risk mitigation is by working with a PEO.

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Conclusion

At this point, you should be able to clearly define the key differences between a Global Employment Company (GEC) and a Professional Employer Organization (PEO). And along with those key differences, you should also have a more comprehensive understanding of just why we’d recommend that you choose to partner with a PEO, as opposed to establishing your new international endeavor as a legal foreign entity.

Working with a PEO opens your business up to a world of potential benefits that range anywhere from employee management benefits to compliance and tax-related benefits. And of course, don’t forget about the potential network that you could expose your business to once you partner with a PEO.

These are all important points to consider, because one of the main purposes behind your international expansion is to open new potential revenue streams, so that you can grow your business in more ways than one. Working with a PEO will offer your business an opportunity to grow, to become more flexible in the market, and to become more streamlined in the ways in which you maintain a presence internationally. This isn’t about successfully establishing your business overseas. It’s about ensuring that your business is successful domestically and internationally in the long run.

By partnering with a PEO, you can strategically position your business for success today, tomorrow, and well into the future.

If you’re interested in learning more about how a PEO can help your multinational company succeed, then it’s time for you to contact us today. We’d be happy to serve as your very first relationship with an experienced and successful Global PEO, with a network that you can leverage to guide your international success.

Thank you for reading this eBook, and we hope that you’re able to make the right choice. Partnering with a PEO is your one-way ticket to a successful international expansion project, and we’ll be happy to prove it to you.

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