Note: If you’re confused, it’s because the term is a misnomer
If you have global expansion plans, then you might be familiar with the term “International PEO.” The information you’ll find that describes what an International PEO is can be a bit confusing. This is because the term is derived from the Professional Employer Organization (PEO) concept well known in the U.S. that, when applied at the international level, does not quite fit the definition of a PEO.
What is a PEO?
A Professional Employer Organization is an outsourcing firm that acts as co-employer to small and medium sized businesses with the purpose of sharing and managing many employee-related responsibilities and liabilities. The PEO could be responsible for any number of HR tasks depending on the agreement. The majority of PEO agreements delegate payroll, benefits administration, worker’s compensation, taxes, hiring and firing processes, and risk management services to the PEO.
Benefits of Using a PEO
Lower taxes: The PEO enters a co-employment contract to file payroll taxes under its own tax identification numbers, resulting in lower taxes for your company.
Complete independence: Having a PEO as co-employer won’t affect your company on a day-to-day basis. You will retain full control over your employees, including their tasks, schedules, salaries and so on.
Time to focus on your core business: One of the greatest challenges entrepreneurs face is not having enough time to deal with all the administrative tasks that come with growing their business. A PEO offers companies the chance to focus on their core business rather than spending their time performing HR tasks.
Economies of scale: A small or medium sized company will not receive the competitive insurance rates that larger organisations can negotiate. A PEO will give you access to better benefits packages at lower prices.
What is an EOR?
An Employer of Record is an outsourcing firm that acts as your employee’s full legal employer. This means your employees sign their employment contracts with the EOR instead of your company. The EOR will be responsible for handling all HR tasks such as payroll and benefits, and it will be liable for all employee affairs. It’s important to note that even though the EOR will be the official employer, you will have full control over the employee’s tasks, salaries, working hours and so on.
Why Outsourcing HR services will Help your Company Grow?
By looking at the figures that support PEOs, it becomes very clear why HR outsourcing services are growing more than ever.
According to experts at Forbes:
- Businesses that use PEOs are roughly 50% less likely to fail.
- PEOs reduce costs of worker’s compensation by as much as 25% for small businesses.
- Companies that choose to work with a PEO have lower employee turnover.
According to the US National Association of Professional Employer Organizations (NAPEO):
- The average annual return on investment of using a PEO is 27.2%.
- Businesses that partner with PEOs have 10% higher employment growth rates than small businesses that don’t use PEOs.
- PEOs increase workplace safety by over 20%.
- 40% of businesses using PEOs upgrade their benefits packages, which results in in 33% lower employee turnover.
What is International PEO?
Businesses operating today have a real prospect to expand internationally. To make that happen they must be prepared to comply with the tax and employment laws of the countries they wish to operate in. International PEOs exist to make the process of international expansion run as smoothly as possible.
An International PEO will become the Employer of Record for your international employees, and it will be responsible for all compliance, tax, payroll, employment benefits, and risk mitigation. You will handle the employee’s day-to-day tasks, while the PEO manages all other HR responsibilities.
Benefits of Using an International PEO
International HR services: When hiring an international PEO, you are earning the right to utilize their HR services, which will ensure you don’t fail to comply with regional labor laws.
Time saving: When you envision international expansion, you want to be focusing on how to succeed in the new country, not on trying to learn everything about international labor and tax laws. An international PEO is designed to take that burden away from you.
Easier legal compliance: It’s difficult to comply with laws you are not aware of. When entering a new country, an international PEO will significantly reduce the risk of government fines, employee lawsuits and financial loss.
How does a PEO Work on an International Level?
As mentioned earlier, the PEO concept relies on co-employment which means both PEO and client each have established a legal entity to share employment responsibilities. However, the purpose of utilizing International PEO is typically to avoid establishing a legal entity. Without an entity of your own, co-employment isn’t possible. To provide more clarity, we simply refer to this employer of record service as PEO / HR Outsourcing.
Employment Outsourcing Explained
When companies use International PEO to hire employees, what they are really utilizing is an employer of record. Since the employer of record has a legal entity established in-country, it can hire employees on behalf of the client company.
Employment Outsourcing allows the client to grow and hire internationally while avoiding the significant costs, time, and compliance risks associated with company formation. It also provides them with the opportunity to test new markets with low commitment, complete temporary projects abroad, hire qualified talent around the world at lower costs, or begin a project in-country while a legal entity is simultaneously being established if time is of the essence.
Ongresso is a team of multidisciplinary experts that specializes in Latin American market entry. From strategic consulting to providing services like Employment Outsourcing, Back Office, Payroll, Tax & Accounting, Legal Representation, and more, we can help your business expand and grow in the region. Reach out to us at email@example.com to learn more about your market entry options.