- International PEOs can assist with legal compliance, business registration and statutory changes as you expand into new areas.
- Although an international PEO can help you expand overseas, it is not a global employers' organization.
- PEOs bundle many broad international HR needs into one service, but they do not eliminate the international registration requirements and risks.
- This article is for small business owners who want to use PEOs as they expand into international markets.
Expanding your business internationally may be on your bucket list, but doing so without due diligence can ruin your dream – and that's where international PEOs come in. These third-party HR firms are known for making reliable partners for expansion into new territories, although some combine them with another type of subsidiary international entity. Learn all below about PEOs and the confusion surrounding them.
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What is a PEO?
A professional employer organization (PEO) is a type of HR outsourcing firm that sponsors your health insurance, workers' comp and other types of business insurance. It does this through a co-employment arrangement in which it assumes the full burden of HR tasks assigned to you. Small businesses like yours typically hire a PEO to handle profits, payroll, legal compliance and taxation. [Related content: Learn the differences between a PEO and traditional HR outsourcing.]
Taxation is a particularly noteworthy PEO service, as your PEO will handle taxes under your Employer Identification Number (EIN) instead of yours. If your PEO's state unemployment tax rate is lower than yours, you will pay less tax.
Your PEO co-employer agreement is more of a formality than anything else, as you will experience little to no change in the way you manage your employees on a day-to-day basis. Your workplace will not change significantly, but if you remain concerned about changes, you can choose to have a PEO certified by the IRS or Employer Service Assurance Corporation. These PEOs follow rigorous standards that guarantee no serious modifications to your works.
What is an International PEO?
An international PEO is a PEO that specializes in providing human resource services to domestic clients that are expanding internationally. International PEOs can assist with all the regulations involved in payroll, and tax, insurance and risk management requirements that come with expanding into a foreign market. As a result, you'll save time and money trying to navigate the complexities of expanding beyond your limits.
Note that international PEOs, somewhat contrary to popular belief, are not global employment organizations (GEOs). We will explain this distinction later. [Read related article: PEO vs. Insurance Broker]
Important achievements: An international PEO is a company that can help you set up legal operations overseas, but is not a global employer organization.
How do PEOs help you expand internationally?
International PEOs can help you reduce your compliance risks as you venture into new areas where you are not familiar with laws and regulations. Similarly, your PEO can inform you about the upcoming statutory changes with expansion into new markets. Your international PEO can also help you register your company in each of its new overseas locations.
In order to offer these functions, the PEO will, as mentioned earlier, sign a co-employer agreement with your company. Through this agreement, you can specify which international employment duties you assign to the PEO and which you prefer to handle yourself. No matter what tasks you contractually assign to your PEO, you will be responsible for day-to-day employee management and all salary negotiations.
What is Employer of Record?
Earlier, we mentioned that international PEOs are not global employment organizations. This is because PEOs are co-employers, GEOs are employers of record.
Employer of Record (EOR) is a third-party company that performs all your employment administrative tasks. This is how your international employees sign an employment contract with your GEO instead of you. Although you retain day-to-day operational control and can set employees' schedules and pay, your GEO is recorded as their employer.
The GEO's EOR arrangement means you don't have to register your company every new location you expand, which is not true with international PEOs. Additionally, your GEO will obtain a work visa for your team, advise you on international labor laws, protect you through international trade insurance, and run international payroll for your team.
FYI: An international EOR provides the Overseas Employment Administration and signing employment contracts directly with your employees.
Pros and Cons of International PEOs
Although PEO and GEO may seem necessary to start operations in another country, they are not absolutely mandatory. That said, they offer a number of benefits that streamline international development and reduce liability, although these benefits do not come without drawbacks. That's why we have listed the advantages and disadvantages of international PEOs below.
International PEO Professionals
Here are some of the reasons why you might want to hire an international PEO.
- Built-in International HR: Like domestic PEOs, international PEOs give you access to HR services. Internationally, this access is perhaps even more important, as contacting experts in the areas where you need help reduces your chances of misunderstanding (and thus failing to comply) with regional law.
- Time Saving: Even if you're excited to expand beyond your limits, you probably aren't thrilled with the prospect of paperwork. And all this trouble will come after spending hours trying to master the ins and outs of international labor and tax laws. It may be a good idea to hire a PEO to handle these tasks on your behalf – what you spend in money, you earn back over time.
- Easy Legal Compliance: With an international PEO, you don't get back all the time you would have planned to spend mastering international labor laws. You also get an HR partner who specializes in keeping your company compliant with those laws. As a result, you can enter international markets with less risk of government fines, employee lawsuits and financial losses.
- Bang for your money: PEOs do more than just ensure your international compliance. They also set up your international payroll, find the appropriate insurance for your company and help you manage your risk. You can often get a pretty good deal for the amount you will pay for your PEO services.
- Co-Employment Structure: Compared to choosing a GEO as you expand internationally, PEOs reduce your employment administration tasks. Perhaps this could translate into more work for you, but it will mean that you retain more control over your HR operations.
Cons of International PEO
Certain aspects of an international PEO may give you pause.
- Less comprehensive business registration: If you choose a GEO instead of a PEO, you won't need to register your company every new location you expand into. The same is not true for PEOs, but they can bridge this gap to some extent by helping you register.
- No EOR arrangement: Unless you fear a loss of control over your employment practices, the lack of an EOR arrangement with international PEO contracts may be of concern. Without the EOR arrangement, you still retain most of the legal employer responsibilities. If your terms of employment violate international labor laws – and again, slip-ups are easy in places where you are unfamiliar with the laws – you will primarily be liable.
- High Financial Risk: The absence of an EOR setup with an international PEO sets your company up for troubles beyond compliance violations. If an international government fines you for your violation, your PEO as your co-employer bears only part of this burden. On the other hand, a GEO accepts full responsibility.
- Possible loss of control: Although international PEOs will never involve themselves in your day-to-day affairs, some small business owners may feel reluctant to employ a third party as a co-employer. The only solution to this concern is to go completely DIY while expanding internationally, as GEOs take even more control over your affairs.
- Fees and other costs: Sure, the quantity and quality of services you get from an international PEO is a big deal for what you spend, but you're still spending a lot of money hiring a PEO. If you are hesitant to pay a lot of money on your expansion, a PEO may not be a viable option. In this case, only the DIY route will work.
- Legal Question: Co-employment is a common arrangement in the United States, but in some other countries, it is illegal. Since the PEO acts as your co-employer, your PEO arrangement may not be valid in the area where you want to expand. Additionally, both you and your PEO must register yourself as a business in the relevant field. If not, compliance may have consequences.
Important achievements: PEOs efficiently package many important international human resources services into one bundle, but they do not eliminate the risks or international registration requirements.
How to learn more about PEO
If you're interested in learning more about PEOs, the best way to get started is by reading about how they work at home. To this end, Business News Daily has created a guide to choosing a PEO and reviewed the best PEO services. Trying the PEO model domestically can help establish an international system – and a thriving global business.