What is a PEO?
What is a PEO?
By definition, PEO stands for “professional employer organization.” A PEO, specifically as it pertains to the U.S. market, is also known as a co-employer. PEOs manage payroll, benefits, and other HR responsibilities for the employees of a client company.
Typically, a PEO has a staff with extensive experience in HR, legal, tax, client services, and accounting. Businesses partner with PEOs to reduce the costs of administering benefits, streamline payroll operations, and successfully expand to an international market without having to set up their own entity. A PEO can cost-effectively guide companies through the challenges of compliantly hiring international employees, compensating according to local laws and regulations, and should it become necessary, compliantly terminating employees to reduce risk.
In addition, PEOs are helpful in that they mitigate health insurance and benefits costs for companies. Working with a PEO is a great way for small- and medium-sized businesses to offer employees great benefits without having to burden their HR administration and in-house HR resources.
How Does a PEO Work?
At its most basic level, a PEO puts a company’s employees on the PEO’s payroll, becoming the “employer of record” for them. Those employees receive tasks and responsibilities from the company as usual, but the PEO is responsible for administering payroll and benefits.
A PEO is typically equipped to handle the following for any given company:
PEOs calculate tax contributions, make direct deposits, deliver on-time payments, and handle other issues related to payroll.
PEOs coordinate medical, dental, vision, and location-specific benefits with health insurance companies. Additionally, PEOs can offer commuter benefits, 401k, flex spending, PTO, sick time, and other benefits typically included in an employment package — working with a PEO does not limit a company’s flexibility when it comes to employee compensation.
PEOs investigate and decipher labor laws, ensuring companies stay within compliance of local, state, and national regulations. When these regulations change, as they often do, PEOs research the potential impact and make necessary adjustments.
PEOs often can handle short- and long-term disability, workers’ compensation, performance management, FMLA, termination pay, and other employee requests.
Who Should Use a PEO?
Any company can use a PEO to help outsource HR, finance, and legal administrative tasks. But small- and medium-sized businesses have the most to gain by working with a PEO. This is because small- and medium-sized businesses can focus on managing core business functions while outsourcing these administrative burdens to a PEO. In addition, not all businesses have direct expertise when it comes to HR, legal, or tax requirements. These areas of business are easily outsourced to PEOs, which specialize in these functions directly.
That said, very large and Fortune 500 companies will often use a global PEO, as well. In any one country, the infrastructure and cost of directly hiring employees may outweigh the advantage of having companies in each country. Large companies, mid-size companies, and even small companies are likely to engage PEOs across borders to facilitate international expansion.
PEOs are particularly valuable for companies looking to expand to overseas markets, especially as they hire their first international employees. A global PEO, meaning a PEO that manages payroll, HR, and benefits for a company with employees in more than one country, is built to help companies handle international business challenges.
What is a Global PEO?
A global PEO handles all the functions of a PEO—payroll, benefits, legal compliance—but for employees located outside of a company’s home country.
A global PEO is a valuable partner for businesses expanding overseas, especially those looking to hire employees in a variety of different countries. Regulations and cultural expectations regarding employment and compensation can change significantly from country-to-country. A global PEO can help companies navigate these legal and cultural differences and successfully expand into new markets.
A global PEO is typically equipped to handle the following for any given company:
- Payroll: Like regular PEOs, global PEOs make on-time payments to international employees, taking into account time zone differences, currency exchanges, and international banking practices. Global PEOs decipher and comply with local tax laws, making the necessary tax withholdings.
- Benefits: Countries around the world have very different approaches to employment benefits. A global PEO helps companies understand cultural expectations for employment in their target market and offer a benefits package that meets local legal requirements.
- HR/Legal: Full compliance with local employment and payroll regulations is a challenging, yet vital, part of a company’s process of international expansion. Global PEOs help companies operate efficiently and in full legal compliance as they operate abroad.
- Additional Benefits: Companies with international employees know there are many unexpected challenges with international expansion. A global PEO is a partner who already has a presence around the world and can help identify and resolve the challenges that arise from legal and cultural differences.
Why Should Businesses Choose a Global PEO for Expanding Overseas?
A global PEO can provide many benefits to its partner companies. Companies considering international expansion, whether for the first time or to a new country, have a lot to gain from partnering with a global PEO.
What Benefits Does a Global PEO Provide?
Compliance with Local Regulation
The world of international employment law is complex and ever-changing, and companies face audits and fines when they fail to comply with local regulations regarding payroll, taxes, and benefits, among other considerations. As any company expands into a new country, it needs the knowledge and practices that only come from careful research and monitoring. Incomplete compliance can not only lead to fines, but to bad press and the loss of prestige and credibility, which often follows.
A global PEO can ease that burden, as it specializes in international employment law. Global PEOs already have an established legal presence in countries around the world. They can ensure that the proper amount of tax is withheld in each paycheck, that employees receive compensation according to local regulations, and that employees are provided a compliant benefits package.
Accurate Financial Forecasting
Many factors make financial forecasting a complex process, especially when international business is involved. Frequently, businesses new to international expansion struggle to project their monthly human resources costs due to factors like currency exchanges and international banking practices.
A global PEO has extensive experience with these factors, allowing it to help its partner companies develop accurate projected budgets. Globalization Partners puts this information together in GoGlobal, our proprietary software platform that presents all the employee data you need in one easy-to-use platform. When your payroll is streamlined in this manner, you can make effective plans and budgets.
Occasionally, countries pass regulations that have sweeping effects on international business. One such law is the General Data Protection Regulation (GDPR), passed by the EU in 2016. This regulation established key privacy and security rights for individuals regarding their digital data. For businesses operating in the EU, GDPR broadly means that the data they keep on clients and employees needs to be secure, accessible to the individual, and safely transferable.
Companies with business in the EU need to comply with GDPR or face fines and penalties. Global PEOs can help. A global PEO with a GDPR-compliant platform has already navigated the complexities and requirements of the regulation, ensuring it can provide its partners with the security of knowing that its employee data is held to the highest standard of data security.
Streamlined Expansion to New Markets
New markets abroad present new opportunities for growth. Companies in all markets are weighing the costs and benefits of international expansion, knowing the challenges, but recognizing the opportunities.
As a company puts together the puzzle of a new international venture, a global PEO can provide confidence about a few key areas. With a global PEO managing and administering payroll and benefits, your company can ensure that it is compensating its international employees in accordance with local law. That means your employees will be satisfied and productive, and you’ll have the foundation for a good reputation with the local government and in the community.
Expanded Benefits Offerings
For small businesses in particular, it can be prohibitively expensive to offer employees a comprehensive benefits package. 401(k) plans, the various kinds of medical care, and other benefits are often only cost-effective in businesses with a sufficiently large pool of employees. Yet, without these benefits, it can be hard to recruit top talent.
A global PEO can help small businesses offer the benefits that potential employees expect, improving recruitment and employee retention. This can be crucial for a business expanding overseas, as workers in a new market might expect a baseline benefit that the company doesn’t offer in its home market. A global PEO can help provide that benefit in a cost-effective manner.
With the right combination of talents and knowledge in your human resources department, you might successfully expand to one international market. But two? More than two? Human resources costs can quickly inflate as a company expands. It takes time and talent to appropriately research and administer payroll and benefits in a new market.
For many companies, a global PEO is a cost-efficient answer to this problem. Not only does a global PEO let you expand more quickly and confidently, but it also outsources the complex task of regulatory compliance to an experienced partner.
Frequently Asked Questions About PEOs
1. Can I Hire In-Country Contractors Instead?
Technically, you could. But when you hire independent contractors internationally, you open yourself up to major compliance risks. If the government of the country in which you want to hire learns that you have hired contractors without a recognized, legal business entity in the country, you could subject your company to substantial financial penalties. In some cases, the company’s directors could face criminal charges. Learn more about the Contractor Trap.
2. What If an Employee Quits?
If an employee quits, it all depends on what the employment contract says. Typically, there is an agreed-upon notice period.
3. What If I Need to Fire an Employee?
International termination of an employee can be extremely difficult. Regulations vary greatly country-to-country. Again, it depends on what the employment contract says. The PEO will handle the termination, compliantly, and with reduced risk. This is a good primer on what to do if you need to terminate an employee working outside of the U.S. Learn more about Managing International Terminations.
What Global PEO Services Does Globalization Partners Provide?
Globalization Partners provides a Global Expansion Platform™ to companies aiming to expand their operations overseas. From recruitment to legal compliance to payroll, we help companies surmount the challenges of international expansion.
International Payroll Services
Payroll is a significant challenge companies face when they first expand to a new international market. Countries around the world have very different laws regarding payroll. Businesses expanding internationally need to carefully research tax law and culture before hiring workers outside their home countries, as the regulations for tax withholding, pensions, and benefits vary widely around the world.
Globalization Partners already has a legal presence established in countries around the world. We are ready to help businesses start paying international employees. We carefully monitor international banking practices and changing regulations, adjusting as necessary to ensure full legal compliance.
Globalization Partners also helps companies adjust to the cultural norms regarding employment that they will encounter around the globe. For example, the United States is one of the only countries where at-will employment is typical. Elsewhere, companies can only dismiss employees for a cause outside of rare circumstances.
Global Benefits Solutions
The process of administering and managing employee benefits is always complex, and it doesn’t get any easier with an international workforce. While the typical medical, dental, and vision benefits package provided by employers in the US is privatized, benefits are handled very differently around the world.
Globalization Partners assists employers by providing full or supplemental global benefits packages that meet local legal requirements and cultural expectations. Our benefits packages comply with data privacy regulations around the world like GDPR and include a framework for tracking leave and paid time off.
The key piece that underpins our Global Expansion Platform™ is our proprietary software, GoGlobal. GoGlobal provides a secure, intuitive interface for reviewing payroll transactions and personnel information. It puts together the vital information you need about all your global employees, even ones in different countries. Available on a wide range of devices, GoGlobal makes it easy to generate employment contracts, authorize payments, monitor onboarding documents, and view employee information.
Questions About International Expansion?
If you still have questions about how a global PEO can help your business expand internationally, contact our team of professionals. Global expansion isn’t an easy process, but we’re ready to help your business overcome the challenges.