Explore The Benefits of Partnering With a Global PEO for Your International Expansion
What is a PEO?
A PEO, or “Professional Employer Organization,” handles administrative services for companies who are looking to expand their presence internationally. These services include payroll, recruitment, benefits, and more.
In America, Global PEOs are often referred to as “co-employers,” meaning that the PEO functions as your onsite HR department in a country overseas.
Businesses partner with Global PEO / Employer of Record organizations to receive guidance for their international expansion projects. A PEO has several areas where it can help companies save time and money during the expansion process:
- It can lower the costs commonly associated with providing employee benefits
- Managing payroll outsourcing and HR functions
- Expand and hire in new global markets without needing to first establish a separate foreign entity
Traditionally, Global PEOs consist of employees with deep globalization expertise in the areas of HR, legal, tax, and accounting.
Companies that are expanding internationally for the first time will often come into contact with a multitude of challenges in regards to hiring and employing a global team. A Global PEO can take over the responsibility for ensuring full legal compliance with local regulations and make sure workers are paid in their local currency. And in the event that an employee needs to be terminated, a PEO with an in-country entity can help part ways with the employee with the correct severance being paid and proper procedures being carried out with respect to the specific market and contract category.
Additionally, Professional Employer Organizations can sometimes provide health insurance and benefits for the company’s employees overseas. This allows companies to focus their communication on carrying out the core functions of their organization’s day-to-day objectives.
How it Works:
Unlike companies that are attempting to expand their global presence on their own, PEOs have the legal capability of hiring employees directly on behalf of the client company. This relationship makes the Global PEO the “employer of record,” of the foreign employee, which means that it can take care of all administrative tasks for the client. These tasks include the management of international payroll outsourcing, handling tax distributions, and ensuring legal compliance.
In addition to providing a more efficient solution for international employee management, this relationship between the client and PEO reduces the overall costs for the client in a few ways; not only does the Global PEO manage employee insurance and benefits locally, but it also lowers operating costs in the foreign country by taking advantage of local tax breaks and sourcing affordable workers so the client can find the best talent at the strongest value available.
This relationship between the client and PEO is referred to as “co-employment,” meaning that the PEO and client share specific responsibilities in regards to managing the employment process. While the exact relationship dynamic will vary depending on the contract, the traditional partnership works like this:
The employees who are working in the new market overseas communicate directly with the end-client and carry out the job requirements of their specific role. The client spends the majority of their time in this relationship working with their foreign employee. The Global PEO manages Human Resources, payroll, and employee taxes while ensuring compliance with local and federal regulations.
6 Benefits of Using a Global PEO
By working with a Global PEO instead of trying to expand overseas completely on their own, global employers gain the ability to expand globally without needing to establish their own foreign entity in the new markets where they are looking to gain a legal presence. This saves companies significant costs and the extensive amount of time it can take to establish a presence in a foreign country.
Another risk involved in establishing your own entity is the risk of permanent establishment. Permanent establishment risk refers to a situation where the local tax authority in a foreign country determines that your company has begun to operate in their country on a continuous or permanent basis, which makes your company liable to owe any and all relevant corporate taxes.
If a foreign country deems your company a “permanent establishment,” you will be subject to pay all of the taxes a standard, local company would pay for all profits generated in the country, in accordance with the local tax rates. The affected company can also be levied additional charges for the accrued interest on the taxes, depending on the specific location and timespan in which the majority of the company’s activities occurred.
Global PEOs can also help expanding businesses hire a global team and grow their international presence into multiple countries without needing to work with additional third-party entities for each individual country they enter. Under this arrangement, the client is able to manage the communications surrounding all of their global workforces through the convenience of having a single point of contact.
PEOs have the ability to increase the efficiency in the process of managing the payroll outsourcing for their foreign employees. This benefit is traditionally handled by an in-country human resources department that is able to provide deep expertise on the local marketplace and share customized recommendations on the subjects of compliance, productivity, and the process of scaling effectively.
Managing payroll in a foreign country involves more than simply paying the employee’s salary on a biweekly basis. International payroll has multiple facets that actively work together to provide comprehensive compliance coverage for the company, including payroll taxes, preparing and filing W-2s in the proper language and currency, creating reports, tracking employee time-off, and garnishments and unemployment claims.
The Global PEO will also take over the responsibilities of managing workers’ compensation and unemployment claims, administrative HR and back-office duties, oversees payroll, benefit plans, and ensures compliance with various policies and procedures, including OHSAm the Family Medical Leave Act, local discrimination guidelines, and and other local, state, and federal regulations.
While the management of payroll outsourcing can be both complex and time-consuming, both have traditionally required foreign business owners to spend significant time overseeing and executing on the daily business operations. Global PEOs can take the payroll burden off your shoulders and deliver more efficient ways to manage your payroll processing.
Global PEOs can also help provide human resources solutions to better develop and manage current foreign employees. In this situation, the PEO can help with all aspects of expansion that fall under the HR umbrella, recruiting, onboarding, managing employee hours and day-to-day performance. If you work with a Global PEO that offers an online HR portal or integrated HR technology, you can gain access to all of your employees personal data and manage much of your foreign employer-employee relationships through the highly convenient online portal, depending on the exact capabilities and features that your preferred PEO offers.
Workplace compliance can refer to various areas of the global expansion process, including taxes, payroll, cultural norms, time and attendance, employment screenings, risk management, safety, and more. PEOs will usually consist of HR experts with in-house, in-country legal entities that possess years of experience that gives them the expertise to help clients navigate the complex processes of expanding their business internationally. PEOs assume certain risks on behalf of the business, thus taking certain responsibilities off the shoulders of the client company and ensuring compliance with all relevant laws and employment regulations.
From providing basic insurance needs in countries that do not have Universal Health Care, such as medical, dental, vision, 401(k), and life insurance, to providing supplemental private benefits like disability, accident, and telemedicine, PEOs have the ability to provide more comprehensive benefits to employees. The level of package can vary widely by market, industry, and level of professional you are looking to hire. PEOs are often able to attain benefit package rates that are not available directly to individual companies due to the high volume of clients they serve and partnerships they may possess with local and international insurance providers.
Partnering with a PEO can save your business significant time and money while simplifying the process of expanding internationally. Contact GlobalizationPedia today to receive a free, customized proposal with recommendations for the best PEO providers in your target market to help your company exceed your expansion goals.