PEOs: What They Are and Why Your Global Business Needs Them

Business is more global than ever, and it’s not just huge corporations expanding overseas. Small and medium sized businesses have options for global expansion that were unheard of a few short years ago. Today, any company can be a multi-national, with a presence in any number of foreign countries.

A Global PEO (Professional Employer Organization) lets companies of any size—and virtually any budget for expansion—hire workers abroad in full compliance with legal authorities across the globe. It does not require a company to go through the expensive and time-consuming process of opening a local subsidiary.

Hiring through a PEO is generally small in scale—often up to five employees—and relatively short in duration. It’s perfect for companies to test their products or services in foreign market before making a full and permanent commitment to the expansion. It’s also a way to leave a global footprint in different countries and markets through offices focused on marketing or research and development.

What is a Global PEO?

A Global PEO (or an associated local vendor) serves as the legal employer for record for your workers abroad. The types of global PEO services can include payroll, workforce management, taxes, insurance, benefits, worker’s compensation, and all other aspects of legal compliance. As the employer of record, the PEO holds the legal liability for the workers.

At the same time, your company directs the workers you hire in their day-to-day tasks. From the worker’s perspective, you are his employer, and you receive the benefits of the work he or she is doing.

The PEO removes one of the biggest obstacles standing in the way of hiring abroad. Without a PEO, opening a foreign office requires registering a legal foreign subsidiary, a process that requires significant capital to pay for the administrative fees in each country it wants to enter as a vendor.

The process takes months to complete, leaving the money tied up until all of the licenses are granted. Once approved, the entity is expensive to maintain, requiring a team of lawyers, accountants, and HR specialists to ensure that all of the tax deadlines are met and all payroll requirements are in compliance. You should also investigate what is the difference between an EOR and a PEO.

Finally, if the company finds that the market is not suitable for its particular goods or services, it needs to go through more bureaucratic steps to close down the entity and end its tax burden. Some countries require the entity to be dormant for a set period of time before it can be closed.

Global PEO is Different from US-Based PEO

It should be noted that the term PEO is understood differently inside the US than it is globally outside the US. PEO inside the US refers to a co-employer arrangement that requires a legal entity within the US. That entity becomes the employer of record and the PEO handles the administrative tasks for compliance, including payroll and management.

In contrast, a Global PEO is essentially an arrangement for employing workers without opening an entity. The PEO holds the full employment liability over the employees while your company hands their day-to-day management.

When Small and Medium Businesses Should Consider a PEO

Unless your company has a strong plan for global expansion, is willing to hire a substantial workforce, and committed to the venture for 3-5 years, your company may be better off with a PEO.

Hiring through a PEO is quick and easy, and lets you enter a foreign market within weeks. That makes it a perfect vehicle for agile companies looking to take advantage of opportunities on short notice—something that is otherwise impossible to do unless you already have a local entity.

Applying for an entity takes time, often several months, if not longer. In that time, opportunities can come and go, and employees you might have wanted to hire may not be available when the entity has been approved.

Hiring through a PEO allows you to take advantage of a larger pool of workers than you would have if you only hired locally. The workers you hire abroad are familiar with the local language and the way of doing business. They are also connected socially and professionally with others, helping you recruit top talent abroad.

A PEO is also an opportunity to test out a foreign market. You can send a small sales team to a promising new market abroad. However, needs can change if the operation succeeds in its goals. If the small sales team performs beyond expectations, you may choose to expand the team to more workers. At some point, you will also want to support the sales by hiring a customer support team.

At that point, opening an entity may be the best option because you will want to have sole control of your employees in order to negotiate contracts with other companies. If you start with a PEO, you can carry on operations while opening the entity, then shut down the PEO and shift to your new entity.

Another Vehicle for Hiring Abroad

The type of presence your company wants to will determine whether you should hire through a PEO or another alternative. While many companies may see global expansion as an opportunity for increasing sales and revenue, others may see a foreign market as a good way to market their brand to improve sales locally.

Companies that want to open offices in Europe for marketing and promotions but not sales or signing contracts may consider opening an EWE (Employment Without Establishment).  With an EWE, your company can operate legally without a local subsidiary. But it cannot be involved in commercial transactions. Your company remains the employer of record, and just as with a PEO, it is easy to open and close.

Whether you choose a Global PEO, an EWE, or a full legal entity, the have affordable options for spreading overseas whenever the time is right. A PEO lets you start slowly and build. For small and medium businesses, there have never been so many options for hiring workers overseas.