The modern business world has become much more dynamic and globalized. Technological advancements and strategic plans for global expansion make hiring international workers extremely important for companies that want to reach new markets.
When hiring an employee, there are several considerations your company will need that make to avoid noncompliance penalties or fees. You’ll also need to have an understanding of the local labor laws in the country you want to hire from.
A co-employment relationship, such as working with a professional employer organization, can help you attract top talent and access a wider range of benefits for your workers. Wondering what a PEO can do for you? This article will tell you everything you need to know.
What are Professional Employer Organizations?
A professional employer organization (PEO) acts as a co-employer that provides Human Resources (HR) services to businesses to help ensure compliance. This means you can outsource complex HR services and responsibilities, such as payroll, taxation and employee training.
In contrast to EOR providers, the PEO and the business share certain employer responsibilities. Workers are employed by both the primary business and the co-employer, allowing you to focus on growing your business and managing your staff.
Certified professional employer organizations hire employees for you, handle required administrative tasks, and any other tasks outlined in the client service agreement, which can streamline the recruiting and onboarding process. This makes it a particularly attractive option for small businesses or medium-sized businesses that want to grow.
What are the Advantages of Using a PEO?
Partnering with a certified professional employer organization provides several important benefits for companies who are trying to reach new markets and broaden their talent pool. PEOs allow you to recruit and onboard skilled workers from the country you want to hire and can help keep you compliant with unfamiliar labor laws.
Cost Efficiency
In addition to making the hiring process more efficient, a quality PEO can help you save time and money. Instead of paying an entire permanent staff of HR professionals to handle the logistics, PEOs provide their services at a much more affordable cost, freeing up resources for other important ventures.
They can also help negotiate favorable rates with new hires for extra savings. Additionally, by having your co-employer handle all HR matters such as safety training, you can cut workers’ compensation costs.
The return on investment in terms of cost savings was 27.3% in 2019, making the service an ideal option for companies who want to expand their operations sustainably.
Employee Satisfaction
Hiring through a PEO can also improve your staff’s morale, especially as a small business. They typically have access to benefits plans that are on par with much larger companies at much more affordable prices. The coverage can include several vital supplementary benefits like:
- Healthcare
- Dental
- Disability
- 401K retirement plans
By offering your employees a more comprehensive benefits package, you can improve employee satisfaction in your company. Businesses that go through a PEO to hire employees have a 10 to 14% lower turnover rate than companies that handle HR responsibilities independently.
Reduced Liability
Your PEO shares liability with your company and can implement risk management strategies and best safety practices to protect your business. By keeping you compliant with employment and safety regulations, you can avoid potential fines or lawsuits from your workers.
Many PEOs offer insurance packages like Employment Practices Litigation Insurance to shield your business from legal repercussions. Your PEO may also be able to get you lower insurance rates than would otherwise be possible.
Failing to withhold the appropriate amount of federal employment taxes or other financial mistakes can lead to significant punishments for your company. Your co-employer takes care of administrative functions for your workers runs payroll, files taxes, and remunerates employees themselves. This means any potential mistakes are the PEO’s responsibility instead of your company’s.
What Does a Professional Employer Organization Do?
Partnering with a PEO can provide your business with several additional benefits, and businesses that use these services grow 7 to 9% faster and are 50% less likely to go out of business. Now that you know what they are and how they can benefit your organization, you might be wondering what specific tasks they can do.
Payroll
PEOs offer payroll administration services and take over payroll processing for your business. They are responsible for paying employees and making the necessary payroll deductions or social security contributions. By outsourcing this task, you can remain compliant with the local labor laws from wherever you want to hire.
This can also help you remain compliant with other employment issues, such as classifying your employees properly, tracking paid time off, and abiding by minimum wage requirements.
A PEO can handle various administrative tasks like gathering employee information and monitoring time and attendance systems. They are also responsible for reporting payroll taxes, managing any applicable liabilities, and providing employees with the necessary tax documents.
Employee Benefits
Another way a professional employer organization can help your company is by streamlining the benefits administration process. The co-employer establishes, maintains, and monitors the benefits that workers are entitled to. This includes ensuring your employees receive statutory benefits like:
- Annual paid vacation
- Sick leave
- Maternity or parental leave
- Worker’s compensation
PEOs also provide access to better supplementary benefits packages for your employees and can get you more favourable rates. They take care of all administrative tasks like enrolling your workers in programs, processing claims, and figuring out compensation costs. With their knowledge about benefits packages and guidance, you can ensure your company follows all the necessary rules while providing your workers with more comprehensive coverage.
Onboarding and Recruiting
Recruiting top talent to your company can help you grow and improve productivity. Engaging a PEO can help you write better job postings to attract top talent from wherever you want to hire from and help you develop your employee handbook so workers can get a better sense of what’s expected from them. A positive candidate experience can also help you improve your brand’s reputation when hiring employees.
A PEO can also help you schedule interviews and perform any necessary background checks or employment offers.
Onboarding is the process of introducing your new hires into your organization and is meant to help the new employee understand the job’s requirements and company culture. This can help integrate an employee and help improve productivity and engagement, even among your remote employees. Common onboarding procedures include:
- Job training
- Orientation to company policies
- Signing an employment contract
- Obtaining the required documentation for payroll
Human Resources
Small or medium-sized businesses can benefit from using a PEO to outsource all HR functions. 45% of small business owners spend around one day per week entirely on administrative human resources issues.
Your professional employer organization provides extensive expertise in HR, meaning you don’t need to employ specialists or handle these matters independently. This allows you to spend more time and focus on managing your team and growing your business.
Your PEO will help you with any complicated HR matters, including guiding you through the process of terminating an employee. These services can help you remain compliant with legal requirements and avoid the potential for damages. Your PEO can also help you implement best practices for your employees’ different personalities and skills.
Additionally, your co-employer can provide HR consulting services to help your company make better decisions. They can also help you with delicate matters such as conflict resolution for workplace disputes and handling workers’ compensation insurance in the event of any workplace-related injuries or illnesses.
Safety
Your PEO can also help you implement best practices when it comes to keeping your place of employment safe. Your co-employer has expertise in reviewing safety practices and developing programs that can help keep your employees safe. They can also help when it comes to training employees to ensure adequate safety measures are being met.
A PEO can help provide any compliance checks, audits, paperwork, and certifications. They may also conduct regular workplace hazard assessments to help uphold safety policies and procedures. This helps to reduce your company’s risk, liability, and any potential worker’s compensation claims.
What are the Cons of Using a PEO?
While using a PEO to hire provides several benefits and can help you avoid noncompliance penalties when hiring in different countries, there are also some important challenges to consider. Here are some of the common cons for companies who use a PEO:
Less Flexibility
One of the key disadvantages a company may face when using a PEO is less flexibility for your employees. By outsourcing important HR tasks such as finding benefits providers, you’ll need to rely on your co-employer to negotiate rates and find packages that suit the needs of your workers.
However, standardized benefits might not be suitable for your workforce. The lack of tailored policies might not align with the demographics of your staff or your company’s culture.
Loss of Control
When you hire a PEO to handle complicated matters such as benefits and termination, you give up a certain degree of control over your company. The PEO doesn’t have an impact on your strategic decisions, but they are responsible for your business’s HR and administrative functions. This means they can influence certain decisions such as hiring or firing through policy enforcement.
PEOs may also be more resistant to changing HR policies. To implement your policies or procedures, your company may need to coordinate with the provider, which can result in less efficient communication. This can also mean you could need to change processes that might work for your team.
Your company will also have less say over important functions such as payroll. In these arrangements, the PEO owns your loss run and payroll data, which means you may need to pay higher rates if you decide to end the co-employment agreement.
How Much Does It Cost to Use a PEO?
Engaging a PEO can be much more affordable than setting up your local entity or using other employment services. Professional employer organizations tend to use two pricing methods:
- Fixed rate: A fixed rate is a specified amount that your company will need to pay to hire employees. Typically, the flat fee can cost you anywhere from $900 to $1500 per year for each employee.
- Variable rate: In this case, the amount you’ll need to pay to hire employees depends on other factors, such as how much the worker makes. Fees are usually around 2% to 12% of each employee’s wages.
Depending on the PEO you choose, you might need to pay certain fees for your application, a yearly fee for services, registration fees, and more.
Emerging Trends in PEO Services
With advancements in technology making communication more efficient, PEOs have had to implement and develop new techniques to connect companies with top talent.
One major trend emerging with PEOs is the integration of technology. This includes using advanced software to automate monotonous procedures such as administering payroll for improved accuracy.
PEOs are also starting to offer a wider range of services to remain competitive. This can include human resources management, investing in employee development or training, and providing recruiting or retention strategies.
PEO vs. EOR
Companies who want to hire internationally may be wondering whether to choose a PEO or an EOR to act as your legal entity. While both services offer similar functions, they also have some key differences to consider before making your choice.
An employer of record acts as the legal entity in the country you wish to hire from. A company does not have to handle the financial and legal requirements of opening up a subsidiary branch, and the EOR handles all complicated hiring processes, such as payroll, benefits administration, termination, and more. The employer of record also takes on all the liabilities associated with hiring and provides a broader range of services for companies expanding internationally.
A professional employer organization can help your company hire international employees, but they are not the full legal employer of international workers. As a co-employer, the PEO shares responsibilities with HR functions but allows you to control day-to-day business decisions and assignments. Additionally, a PEO may primarily have expertise within a certain country or state.
How Can Borderless Help?
Borderless offers a full suite of services that can help you recruit top talent from around the world and remain compliant with complex labor laws. Some of the services we offer are:
- Instant invoicing
- Payroll compliance
- Payments in real time
- Localized benefits in the country you want to expand to
- Employee benefits
We offer an all-in-one platform so you can hire, pay, and manage your international staff. You won’t need to pay anything upfront or worry about hidden costs. We can also help you manage your remote employees’ or contractors’ payments directly from your smartphone.
Interested in learning more? Book a demo with us today or contact us to learn how we can help your company expand into new markets, remain compliant, and build a global presence.
Disclaimer: Borderless does not provide legal services or legal advice to anyone. This includes customers, contractors, employees, partners, and the general public. We are not lawyers or paralegals. Please read our full disclaimer here.
