PEO Pros and Cons: How a PEO Benefits Your Business

PEOs can be a great way to manage international talent and expand your business into new markets, but they’re not suited to every business strategy. Read on to discover our list of PEO pros and cons.

PEO Pros and Cons: How a PEO Benefits Your Business
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Professional Employer Organizations (PEOs) help companies manage new talent by offering key HR services both locally and internationally. While they're often confused with Employer of Record (EOR) services, PEOs don’t employ talent on behalf of a company. Instead, they act as an outsourced HR function, taking on administration related to onboarding, compliance, payroll, and sometimes even global employee benefits.

In order to use global PEO services, your company would need to have a legal entity (such as a foreign subsidiary) in the employee’s country. So, for example, if you want to hire a new employee in the U.K., you could go through a PEO based there to help manage certain HR functions, but you would need a legal business presence in the country already for compliance reasons.

Below, we’ve outlined the main PEO benefits, what you need to watch out for, and how Omnipresent can help you hire, pay, and manage global talent with ease.

PEO Pros

Below are just some of the advantages a PEO could offer your business.

Lower HR Overheads

A simple but crucial benefit of the PEO model is lower HR costs. By taking away the burden of time-consuming administration, your HR team can focus on higher ROI activities. The fee you agree to in your contract with your chosen PEO provider covers a range of HR services for seamless employment. This can make scaling up locally and internationally very cost-effective.

Simplified Payroll & Tax Preparation

Many PEOs manage the payroll process for you. In fact, they’re often called “global payroll providers.” Their services include paying salaries, in addition to withholding, calculating, and remitting income tax and contributions to the relevant authorities. Payroll is a notoriously bureaucratic process, so having it handled externally by experts can save you a lot of time and expenses while reducing the risk of non-compliance.

Employee Benefits Managed for You

PEO services often make sure your employees are getting the benefits they’re legally entitled to within their local jurisdiction. This includes things like healthcare and pension plans. You may also want to top these off with your own tailored benefits packages, like remote work stipends or more comprehensive healthcare plans.

Assistance with Employment Compliance & Risk Mitigation

While PEOs don’t usually set up compliant employment contracts for your employees, they can offer you assistance on how to employ staff in compliance with local laws and regulations, as well as local customs. For example, they may be able to help you better understand different types of paid leave, what salaries to pay (salary benchmarking), and how to reduce Permanent Establishment (PE) risk.

A Local Delegate for Your Employment Needs Abroad

In sum, PEO benefits cover a wide range of HR functions, significantly reducing your company’s bureaucratic burden. While they sort out the primary logistics of employment for you, you can focus on growing your business, testing out new markets, and engaging your new employees.

PEO Cons

While there are many PEO benefits for businesses looking to expand internationally, there are a few limitations you should be aware of.

You Need to Have a Local Entity

In order to use a PEO, you need to set up a local entity in the country you wish to employ talent in. However, this can be really time-consuming and expensive - in fact, it could cost you around $15,000 in professional fees. So, unless you’ve validated a new market or want to build a large team abroad, it’s often best to take an agile approach to global expansion. This may mean using an EOR to employ international talent on your behalf instead.

The Legal Liability Remains with You

PEOs don’t take legal responsibility for your employee(s), unlike EORs. In other words, they don’t employ talent on your behalf, so it’s your responsibility to ensure the employment contract and ongoing management of talent remains compliant, from onboarding to offboarding.

No Collective Agreement Responsibility

In many countries, employment relationships are regulated or mediated by collective agreements. But many PEO services don’t cover these. Ignoring collective agreements could put your company at risk of non-compliance or create an unwanted bureaucratic mess.

Don’t Cover Additional Contractual Obligations & Liabilities

Additional contractual obligations include things like intellectual property (IP) rights, data protection, health and safety, etc. Most PEOs won’t check for these when you employ a new hire, which could leave your company at risk.

PEO Pros and Cons: A Summary

There are several PEO pros and cons. On the one hand, PEOs can provide a time-effective way to scale your team and branch out into new markets. PEO benefits include support with key HR and payroll functions, plus assistance in staying compliant with local laws and regulations. Employing talent with a PEO could be your ticket to cost-effective global growth.

On the other hand, using a PEO isn’t the right option for some businesses - especially if you don’t yet have local entities established in your new markets.  Furthermore, PEO providers can offer a wide range of services, but you will have to read the fine print and be clear about where their responsibilities start and end before signing on.

Fortunately, Omnipresent can help you hire, pay, and manage global talent in a way that suits your business. We offer a range of tech-enabled, expert-led solutions that cover compliance, onboarding, payroll, benefits, and more, so you can grow your global business with ease.

Get in touch to find out more and get started.

The information on this page is for informational purposes only and is not to be construed as legal advice. Please see our disclaimer for more information.

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Sean Tan

Sean is a Singapore-qualified lawyer with prior experience in private client and funds matters, now a generalist in-house legal counsel with an interest in employment, corporate/compliance, and data protection.

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