Expanding your business internationally might be on your bucket list, but doing so without due diligence can ruin your dream – and that’s where international PEOs come in. These third-party HR firms are known to make reliable partners for expanding into new territories, though some people mix them up with another type of helpful international entity. Learn all about PEOs and the confusion surrounding them below.
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A professional employer organization (PEO) is a type of HR outsourcing firm that sponsors your health insurance, workers’ comp and other types of business insurance. It does so through a co-employment arrangement in which it assumes the full burden of whichever HR tasks you assign to it. Small businesses like yours typically hire PEOs to handle benefits, payroll, legal compliance and taxation. [Related content: Learn the differences between a PEO and traditional HR outsourcing.]
Taxation is an especially notable PEO service, as your PEO will handle taxes under its employer identification number (EIN) instead of yours. If your PEO’s state unemployment tax rate is lower than yours, you’ll pay less taxes.
Your PEO co-employer agreement is more of a formality than anything else, as you’ll experience no changes in how you manage your employees day to day. Your workplace won’t change significantly, but if you remain worried about changes, you can choose a PEO certified by the IRS or Employer Services Assurance Corporation. These PEOs adhere to rigid standards that all but guarantee no serious modifications to your operations.
An international PEO is a PEO that specializes in offering HR services to domestic clients expanding internationally. International PEOs can assist with payroll, and all the regulations involved in tax, insurance and risk management needs that come with expanding into a foreign market. As a result, you’ll save time and money trying to navigate the complexities of expanding beyond your borders.
Note that international PEOs, contrary to somewhat popular belief, are not global employment organizations (GEOs). We’ll explain this distinction later. [Read related article: PEO vs. Insurance Broker]
An international PEO is a company that can help you establish legal operations in foreign countries, but it is not a global employer organization.
International PEOs can help you lower your compliance risks as you venture into new territories where you’re likely not familiar with the laws and regulations. Similarly, your PEO can keep you informed of statutory changes that come with expanding into new markets. Your international PEO can also help you register your company in each of its new foreign locations.
To offer these functions, PEOs will, as mentioned earlier, sign a co-employer agreement with your company. Through this contract, you can designate which international employment duties you delegate to the PEO and which you prefer to handle yourself. No matter which tasks you contractually assign to your PEO, you’ll remain responsible for day-to-day employee management and all salary negotiations.
Earlier, we mentioned that international PEOs are not global employment organizations. That’s because whereas PEOs are co-employers, GEOs are employers of record.
An employer of record (EOR) is a third-party company that takes on all your employment administrative work. Your international employees thus sign employment contracts with your GEO instead of you. Although you retain day-to-day operational control and can set employees’ schedules and salaries, your GEO is recorded as their employer.
The EOR arrangement of GEOs means that you won’t have to register your company in every new location into which you expand, which isn’t true with international PEOs. Additionally, your GEO will obtain work visas for your team, advise you on international labor laws, protect you via international business insurance and run international payroll for your team.
Although PEOs and GEOs may seem necessary for launching operations in another country, they aren’t exactly mandatory. That said, they offer many advantages that streamline international growth and minimize liability, though these benefits don’t come without drawbacks. That’s why we’ve listed the pros and cons of international PEOs below.
Here are some of the reasons you might want to hire an international PEO.
Some aspects of international PEOs might give you pause.
PEOs efficiently package many important international HR services into one bundle, but they don’t eliminate risk or international registration needs.
If you’re interested in learning more about PEOs, the best way to get started is to read about how they work on a domestic level. To that end, Business News Daily has created a guide to choosing PEOs and reviewed the best PEO services. Trying the PEO model domestically may prove helpful for setting up an international system – and a thriving global business.