Fundamentally Professional Employment Organisations (PEO) started in the USA to help businesses of all sizes have access to economies of scale while procuring benefits for their workers and they help to navigate the different employment law across different states. Then using a PEO (Professional Employment Organization) become a popular employment option for companies with operations in additional to the US, Africa & Asia, where there is wide difference between country or state laws on corporate registration, employment and payroll.
A PEO is useful where a company (foreign or domestic) wants to assign or employ staff in multiple states or countries, but wants to avoid the expense and administrative tasks of incorporating and or complying with diverse state laws and regulations. Some of the benefits of PEO’s did not translate across international boarders so the evolved the international PEO’s began to call themselves Global Employment Organisations (GEO). But don’t worry they are most commonly the same.
Professional Employment Organisations (PEO’s) are extensively used in foreign countries for employment and payroll support, and act as a ‘co-employer’ for the client-company. Sometimes the term is used interchangeably with GEO (Global Employment Organization), but there are a few key distinctions between these two employment outsourcing services which are outlined in this guide. In most cases a GEO is a sole and legal employer of record. On the most part Domestic and US centric PEO’s simply shares some of the employment and payroll tasks with the client.
For example; Agile (www.agilehumansolutions.com) is an International PEO and a GEO, this is because we help our client’s hire and expand compliantly and efficiently across the globe. The reason we are both, is because we offer Employer of Record (EOR) and co-employment formats dependent on the location operational requirements and local employment laws.
What is International PEO
A definition of PEO is a HR outsourcing (HRO) service, that assists a company with the management of employment related tasks, including employee benefits, compliance with legislated regulations, servicing payroll and risk management. It is essentially a ‘co-employment’ relationship between the PEO and the client-company, so that the PEO can assume some of the employer responsibilities for the client.
What are the advantages of a PEO over doing it yourself? Other than avoiding the cost and energy requirements of establishing a new incorporated entity in a foreign jurisdiction; One primary reason may be that the PEO has a built in HR support structure that includes:
· Risk Management and Worksite Safety
· Payroll & HRIS Servicing
· Insurance and Workers Compensation Coverage
· Regulatory Compliance
· Withholding and Taxation
· Corporate Immigration when sending employees to new countries
· In-Country facilitation and procurement
· Local Employment law advisory
· IP protection and Off-boarding
How does my business engage with a PEO?
International PEO’s contract in a business-to-business arrangement with the client to handle defined aspects of the employment duties to the employees. This can be a comprehensive service, or in some cases may be scaled down to suit the client’s specific needs.
The client-company will advise on the content of employment contract with the employee, the international PEO will then advise on local laws and employment norms. Both will agree to changes from the clients typical hiring conditions to match the local landscape. They will then co-negotiate compensation and manage the work activity. The employee should feel that the PEO is actually just an extension of their companies Human Resources department.
Pros and Cons of Using a PEO
There are pros and cons to using an international PEO as with any professional service, and each company will need to assess their own needs and weigh any disadvantages in their decision.
· A ‘ready-made’ HR support infrastructure and In-country HR Team, that a company can plug into at any time and with different degrees of service
· Frees up time for recruitment and management of key employees
· Reduces compliance risk across state and national borders when expanding
· Brings an efficient ‘co-employment’ partnership to set the company apart from others
· Additional expense of the service fee.
· Perception of a ‘loss of control’ of some business or HR functions
· Limited ability to build local procurement and supply partnerships.
As mentioned, there is a difference between some entities definition of PEO and GEO employment solution. The basic distinction is that the GEO offers the client a sole and legal employer of record in the location where business is being done. The employment contract is between the EOR and employee based on local laws. Many international PEO’s provide this under one banner. This service is provided based on what is required locally and by the specific business. So it is important to ask these questions to be clear on what service you are paying for:
The PEO service can be more arms-length as a ‘co-employer’, and is essentially in place to support the employment relationship with the end client though various HR related administrative tasks and services. Determine what service you will receive with these questions:
What is my Employer Relationship in-country with the said employee?
· PEO: The PEO becomes a ‘co-employer’ along with the client, meaning liability and responsibilities still rest with the client, but the PEO can minimize compliance risk.
· EOR or International PEO: Employees become fully employed by the Employer of Record, and the EOR has all responsibilities for the administration of employment.
What employer Insurance will I have to hold for the employee?
· PEO: Some insurance is provided but may have to be opted into and paid for in addition to service costs. The client still needs to carry their own insurance for protection as a co-employer. It may also be difficult for PEOs to get Workers Comp insurance for non-clerical industries. This often becomes the client’s responsibility.
· EOR or International PEO: Agency and client become protected from risks such as litigation and compliance matters related to the employment of the employee. The Employer of Record’s insurance covers the employee fully, including General Liability, Professional Indemnity and Workers Compensation. The Employer of Record is compliant with healthcare reforms and offers medical plans to its employees on behalf of its client
Do I need to have an Employment Contract with the Employee?
· PEO: The employment contract is with the client, not with the PEO.
· EOR or International PEO: The employment contract is between the employee and EOR ‘Employer of Record’, with a service agreement between ‘Employer of Record’ and the agency/client
Do I need a Company Registration in- Country?
· PEO: Client is still required to register their company in every location where they wish to have employees or conduct business, but the PEO may assist.
· EOR or International PEO: Using an Employer of Record means you don’t need to register in multiple locations as they are already set up as a legal employer.
What are my Statutory Requirements?
· PEO: Transfers all risk to the client, but can advise on statutory changes and regulatory compliance.
· EOR: All the risks are carried by the EOR to meet statutory employment laws.
Who Uses a PEO?
The question of what types of companies will use a PEO depends on several factors such as:
· The HR department’s time is dominated by paperwork and administrative tasks
· The company wants to stay on top of changing employment regulations in multiple business locations
· HR needs to focus on recruitment and retention of skilled employees, rather than employment administration
· Benefit and insurance compliance are a major problem and expense
If these points describe your HR department, then a PEO can offer one reasonable solution to your employment needs, but a GEO could also do the same thing with an EOR to act as full legal employer.
I know that we make it confusing by naming our service so many things PEO, EOR, GEO & HRO. It is like we are trying to compete with the periodic table for annoying and confusing acronyms. But the key to navigating this minefield is asking the correct questions.
Which is best for you? This can only be answered by your management and HR departments; based on workload, appetite for risk, profit margins, duration of endeavour and understanding and experience in the said jurisdiction. Both PEO and GEO (also termed International PEO) can be hugely helpful in expansion and global scaling. It is just important you understand your exposure and work with experienced professionals. Which is the time for a plug. Agile’s leadership consists of 50% Senior Global HR professionals and 50% Global scaling and start-up directors who know the complexity of global expansion because they have done it and with 25 years experience supporting business’s enter new countries across the world we are the most compliant choice. For a quick 30 minute exploratory discussion about our services contact us here or download a country specific guide and white paper here.