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The Pros and Cons of an International PEO

The Pros and Cons of an International PEO

International PEOs can help you expand overseas, but some say global employer organizations provide the same services more reliably.

  • International PEOs can help you with legal compliance, business registration, and statutory changes as you expand into new territories.
  • While an international PEO can help you expand overseas, it is not a global employers organization.
  • PEOs group many global human resource needs into one service, but they do not eliminate the needs and risks of international registration.
  • This article is aimed at small business owners who wish to use a PEO as they expand into international markets.– Expanding your business internationally may be on your wish list, but doing it without due diligence can ruin your dream, and this is where international PEOs come into play. These third-party HR firms are known to be reliable partners for expanding into new territories, although some people confuse them with another type of useful international entity. Learn all about PEOs and the confusion surrounding them below.

What is a PEO?

An Employer Professional Organization (PEO) is a type of human resource outsourcing company that sponsors health, workers’ compensation, and other types of corporate insurance. You do this through a co-employment agreement in which you assume the full burden of any human resources duties that are assigned to you. Small businesses like yours often hire PEOs to handle benefits, payroll, legal compliance, and taxes. [Related content: Learn the differences between a PEO and traditional HR outsourcing.]

Taxes are a particularly noteworthy PEO service, as your PEO will handle taxes with their 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 contract is more of a formality than anything else, as you won’t experience any changes in the way you manage your employees on a daily basis. Your workplace won’t change significantly, but if you’re still concerned about the changes, you can choose a PEO certified by the IRS or Employer Services Guaranty Corporation. These PEOs adhere to strict standards that virtually guarantee that there will be no serious changes to their operations.

What is an international PEO?

An international PEO is a PEO that specializes in offering human resources services to domestic clients that expand internationally. International PEOs can help with payroll and all regulations related to risk management, tax and insurance needs resulting from expanding into a foreign market. As a result, you will save time and money by trying to navigate the complexities of expansion beyond your borders.

Keep in mind that international PEOs, contrary to some popular belief, are not global employment organizations (GEOs). We will explain this distinction later. [Read related article: PEO vs. Insurance broker]

How do PEOs help you expand internationally? International PEOs can help you reduce compliance risks as you venture into new territories where you may not be familiar with laws and regulations. Likewise, your PEO can keep you informed of legal changes that result from expanding into new markets. Your international PEO can also help you register your business at each of your new overseas locations.

To offer these features, PEOs, as previously mentioned, will sign a co-employer agreement with your company. Through this contract, you can designate which international job functions you delegate to the PEO and which you prefer to manage yourself. Regardless of the duties you contractually assign to your PEO, you will remain responsible for the day-to-day management of employees and all salary negotiations.

What is a registered employer?

Earlier, we mentioned that international PEOs are not global employment organizations. This is because while PEOs are co-employers, GEOs are registered employers.

An Employer of Record (EOR) is a third party company that takes on all administrative work for your employment. Your international employees sign employment contracts with your GEO instead of with you. Although you maintain daily operational control and can set employee hours and wages, your GEO is registered as an employer.

GEO’s EOR agreement means you won’t have to register your business in every new location you expand into, which isn’t true with international PEOs. Additionally, your GEO will obtain work visas for your team, advise you on international labor laws, protect you through international corporate insurance, and manage international payrolls for your team.

Pros and cons of international PEOs

While PEO and GEO may seem necessary to start operations in another country, they are not exactly mandatory. That said, they offer many benefits that accelerate international growth and minimize liability, although these benefits are not without drawbacks. That’s why we’ve listed the pros and cons of international PEOs below.

Advantages of international PEOs

These are some of the reasons why you may want to hire an international PEO.

  • International HR Incorporated – Like national PEOs, international PEOs give you access to HR services. This access is perhaps even more important at the international level, since making use of experts in the areas where assistance is needed minimizes the possibility of misunderstanding (and therefore of non-compliance) with regional legislation.
  • Time Saver: Even if you’re excited about expanding beyond your borders, you’re probably not thrilled with the prospect of paperwork. And all this hassle will come after hours spent trying to master the ins and outs of international labor and tax laws. Hiring a PEO to run these businesses on your behalf can be worth it – what you spend on money, you earn it over time.
  • Easier Legal Compliance – With an international PEO, you not only go back all the time you could have planned to devote to mastering international labor law. You also get an HR partner who specializes in getting your business to comply with these laws. As a result, you can enter international markets with less risk of government fines, employee lawsuits, and financial losses.
  • Get your money’s worth – PEOs do more than just ensure your international compliance. Plus, they set up your international payroll, get the right insurance for your business, and help manage risk. For the amount you will pay for your PEO services, what you get is usually a good deal.
  • Co-employment structure – Compared to choosing a GEO when expanding internationally, PEOs take on fewer employment management tasks. Perhaps this could mean more work for you, but it will mean more control over your HR operations.

Cons of international PEOs

Some aspects of international PEOs can make you think.

  • Less complete business registration: If you choose a GEO rather than a PEO, you won’t have to register your business at every new location you expand to. The same is not true for PEOs, but they can somehow fill this gap by helping you with registration.
  • No EOR Agreements – Unless you fear losing control over your business practices, the lack of EOR agreements that accompany international PEO contracts can be a cause for concern. Without an EOR agreement, you still retain most of the employer’s legal responsibilities. If your working conditions violate international labor laws (and, again, mistakes are easy in places where you are unfamiliar with the laws), you will be the one who bears the primary responsibility.
  • Increased Financial Risk: The absence of an EOR setup with international PEOs exposes your business to problems beyond compliance violations. If an international government imposes penalties on you for your violations, your PEO bears only part of this burden as your co-employer. A GEO, on the other hand, takes full responsibility.
  • Potential Loss of Control – Even if international PEOs will never be involved in your day-to-day business, some small business owners may still be reluctant to make a third party a co-employer. The only solution to this concern is to go completely on their own by expanding internationally, as GEOs take even greater control of their business.
  • Fees and Other Costs – Sure, the quantity and quality of services you get from international PEOs for what you spend is a great deal, but you’re still spending a significant amount of money hiring a PEO. If you are reluctant to pay too much money for your expansion, PEOs may not be a viable option. In this case, only the do-it-yourself route would work.
  • Legal Matters: Co-working is a common arrangement in the United States, but in some other countries it is illegal. Since a PEO acts as your co-employer, your PEO agreement may not be valid in the territory you wish to expand into. Additionally, both you and your PEO must register as a company in the relevant territory. If not, there may be compliance consequences.

How to learn more about PEOs

If you’re interested in learning more about PEOs, the best way to start is to read how they work nationwide. To this end, Business News Daily has created a guide to choosing PEOs and reviewed the best PEO services. Testing the PEO model nationally can be helpful in establishing a successful international system and global business.

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