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 a term called “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 provides a variety of services to small and medium sized businesses, mainly HR and payroll tasks. The PEO enters into a co-employment contract to file payroll taxes under its own tax identification numbers, thus providing clients with a number of advantages. These include: lower rates for benefits, lower labor costs from outsourcing non-core activities, and shared risk/liability.

What is International PEO?

International PEO is a global employment solution for hiring employees in foreign countries without the need to establish a legal entity. In this scenario, the International PEO hires workers on behalf of the client and manages risk mitigation and compliance. In doing so, it becomes the employer of record for the client by fully employing the workers.

Why Doesn’t 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 Employment 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, Contractor Payments, Payroll, Tax & Accounting, Legal Services, and more, we can help your business expand and grow in the region. Reach out to us at contact@ongresso.com to learn more about your market entry options.

Written by: Ongresso Marketing Team

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