Many business leaders are familiar with common HR support channel such as staffing, consulting, and benefits brokers. But Global professional employment organizations (PEOs) provide a different kind of service that enables businesses to effectively manage risk and compliance when hiring and expanding overseas.
This is a competency gap that needs to be filled, and one of the fastest ways is via an international PEO. At the same time though, service based global PEOs do have their limitations opening the door for blended solutions that harness both software and service to help employers meet their business objectives.
What is a Global PEO?
What if your business was able to offload the payroll, tax compliance, and other complex processes in international hiring while still being able to employ a base of motivated, highly competitive talent? That’s the value of the global PEO model. Essentially an international PEO is a service firm that allows the company wanting to hire an employee in a new overseas location, to outsource the legal hiring requirement and ongoing payroll of that employee.
A global PEO, which stands for ‘global professional employer organization‘ is a service firm that allows employers to outsource specific tasks and processes related to employee management without having a local registered entity in that country .
This is accomplished by the global PEO company hiring the client company’s employees and becoming the employer of record for compliance and tax purposes. Whilst a Global PEO manages and maintains a global payroll service and record keeping for the client employees, the client is able to direct the daily tasks of the employees, focusing on the key priorities that impact the business.
4 Benefits of Using a Global PEO?
This arrangement clearly has benefits for the client, as it allows the firm to keep its customers and business needs at the top of the agenda. In addition to that focus, there are four areas clients benefit from leveraging a global PEO: flexibility, in-country awareness, cost, and time.
A global PEO provider enables its clients to hire full-time employees (not contractors) risk free without having to set up a legal entity in the country they are looking to expand to. Instead of trying to manage the complexities of each country’s limitations on contractors, global PEOs allow firms to hire employees that can get the job done, creating a stronger employment relationship and more stability than a flood of temporary workers could provide.
One of the biggest challenges for employers is understanding local payroll regulations, mandatory and non-mandatory employee benefits and local labor laws. That is, all the things you need to know and process in your local payroll to be in local compliance. Using an international PEO allows employers to sidestep these complex issues, placing the compliance requirements and international payroll in the hands of local experts. See this for the advantages of using an in-country EOR partner versus wholly owned infrastructure
Setting up a local entity i.e. a registered company in a foreign country is a time consuming and expensive process. With global employee leasing, international PEOs allow employers to hire local workers without going through the expense and hassle of setting up a local, permanent establishment. For companies, and especially growth start-ups set on quick global expansion there’s no better way to hire quickly and compliantly
The preliminary findings from Papaya Global’s 2017 Global HR Practices Survey point to one clear fact: the number one reason employers hire global talent is to create a global footprint close to their target market. And in instances where firms are seeking, time is of the essence. An international PEO gives employers an opportunity to leapfrog the competition, putting workers in place in a fraction of the time it takes to hire through more traditional means.
What is the difference between Global PEO and EOR and GEO?
Essentially they are the same service with different names. GEO stands for ‘Global Employment Organisation’ and EOR for ‘Employment of Record’, essentially they all refer to the same services within the international sphere.
I’m using a Co-employment service in the US, what’s the difference?
Co-employment in the USA is different to a global PEO service. Co-employment also known as a PEO in the USA (note not global!) requires that the company has a registered local entity in the US with the PEO processing all payments taxes and liabilities under this entity. All labor and compliance liabilities will still be enforced on the company’s local entity.
Why should I use an International PEO service instead of setting up a legal entity?
Setting up a legal entity in the country in which you want to expand is complex and comes with many tax obligations and legal liabilities including: end of year financial reporting, nominating local directors and ensuring that the entity meets all local legal requirements.
Whilst there are many cases in which a corporate must have a local entity in order to set up business activity in a specific country, generally it is advisable not to set up a local company when first setting up in a new country. Understanding local labour laws and discharging employer obligations is complex and time consuming. Payroll mistakes cause local employee dissatisfaction and at worse fines and bad publicity. There are a number of signposts for when a company is ready to move from a global PEO to ‘payroll’ solution; a global PEO service though is a perfect solution to set up a new operation in a new country.
What is the difference between global PEO and global payroll?
Global payroll is the short hand term for when a company has created a local entity, this term is used to differentiate it from global PEO / EoR when they are using a 3rd party company to be the employer of record. However, there are common processes in both arrangements. See this for a more detailed definition of global payroll
Who will manage the employees?
An international PEO is a transparent layer between the company and the employee. A good professional employment organization service will ensure that all the legal and compliance issues regarding he hiring of the local employee/worker is done correctly whilst his monthly or bi-monthly payroll is done in full local compliance. The day to day management of the employee’s tasks is conducted by the employer.
Why not hire remote workers as contractors?
This was a very common practice in the past, but like the option that lies at the other end of the hiring spectrum – setting up a local entity – is now generally considered inadvisable due to the problems of contractor mis-classification. If a workers works exclusively for a company, his legal status would be considered a mis-classification. The worker will be able to claim full payment for social benefits, PTO’s, severance payments, in addition to the monthly compensation he received from the company, negating the very purpose of hiring as a contractor to start with
Another thing to take into consideration with contractors, is the fact that it’s hard to enforce non competitor, NDA and IP protection clauses on contractor agreements.
Further Reading on Global PEO
- 5 Considerations When Choosing a Global PEO
- Why the Independent ICP Model is Best
- Domestic PEO vs Global PEO Explained
- Why you Need to Consolidate your Global PEO Providers
- When to move from a Global PEO to Opening an Entity
The Papaya Global Advantage
Despite these strong benefits, the global PEO model does have a flaw. Many global PEOs are entirely service-based, which means that there is no technology in place to keep resources aligned. In addition, there is often broken communication between the PEOs, and employers. This entire process is challenging to oversee from a business perspective, offering little transparency into operations. In fact, more than half of respondents to the Global HR Practices Survey said that a lack of transparency is one of the most challenging aspects of managing a global workforce.
This is where Papaya Global’s total workforce solution come into the picture. Our technology platform helps to standardize and bring transparency to this network of in-country suppliers, creating lasting value for organizations and disrupting the marketplace. The system acts as a nerve center for managing the disparate activities that go along with global employment relationships. Eynat Guez, Co-founder of Papaya Global, explained,
What really separates us is being transparent and cost effective. We offer a platform to manage the employment process in an efficient way, creating clear communications among our clients and their PEOs and other suppliers.”
While global PEOs do provide value for employers, they are best augmented with technology solutions to help employers get the best of both worlds: the flexibility and cost-savings that a global PEO can bring to the table and the transparency and standardization of a technology platform underpinning the variety of relationships necessary to operate a global business.
At the end of the day, hiring and managing a global workforce is a challenging prospect, and it’s best to find good partners to bring the expertise and scalability where they are needed most. Whether you are looking for a Canadian PEO, Australian PEO, UK PEO , China PEO or Japanese PEO our solution will enable you to hire, onboard and pay your employees quickly and accurately.