How PEO Services Can Complement Your Business Growth
Given the talks about hiring global talent and remote work across industries, PEO services are becoming more common. And why not? A Professional Employer Organization (PEO) service provider enables businesses across different sectors to expand into global markets efficiently while reducing your efforts and expenses in managing and hiring your global teams.
As per a recent survey, the average cost saved by businesses by partnering with a PEO is $1,775 per employee annually compared to the average price charged by a PEO service provider per employee is $1,395 (which yields an annual ROI of 27.2%).
The exponential growth of the PEO industry in the past few years indicates that the PEO industry has a positive and profitable long-term outlook. However, a common question that arises is what are PEO services, how it functions, and why PEO services are essential for business expansion.
This article aims at covering all the essential aspects of PEO services.
What are PEO Services?
PEO services are employment, payroll, and HR solutions offered by Professional Employer Organizations (PEO). PEO HR services are customizable and work best for midsize and small businesses as
- A part of a business expansion plan and,
- Hiring in new international markets.
A PEO service provider centralizes all HR services, including onboarding new employees and smooth employee exits. Although some providers offer an all-inclusive package, several PEO providers provide you the flexibility of choosing the services that better suit your business requirements.
A few of the HR solutions provided by a PEO company include:
- Payroll processing: PEO service providers distribute employee salaries, set up payroll processes and information, withhold social security contributions and taxes, and submit the necessary amounts to the local authorities. Therefore, PEOs ensure that the payroll and tax filings are mandatory for employers to process with the employment regulators.
- Insurance management: PEO service providers ensure all employee-related insurance and professional insurance such as professional practice liability insurance are covered.
- Benefits administration: A PEO solution manages employee benefits such as retirement or pension contributions, health insurance, unemployment insurance, and workers’ compensation insurance premiums. They ensure that your employees receive all statutory and supplementary benefits.
- HR consulting and strategy: PEO solutions often provide consultancy services by advising your business to achieve the best HR structure. An example can be helping your business with ideal full-time, part-time employees and independent contractors to avoid misclassification.
- Employer of Record (EOR): An EOR is a third-party service that acts as a legal employer of staff for you. An EOR allows the PEO service provider in compliance-related aspects such as filing employment taxes (such as payroll and income taxes) by using its identification number.
- Employee training and development: Providing employee training can get challenging. Certain PEO services also include employee training in a few areas such as health, safety, and anti-discrimination policies. However, this does not include training on the employee’s job responsibilities.
How Are PEO Services Regulated?
Different regulations apply to a PEO service operating in the United States both on a
- State-level and,
- Federal level
The federal tax law of the United States (the Internal Revenue Code) classifies a PEO service as a ‘third party payer.’ A third-party payer is liable for all compulsory contributions (such as the social security and statutory insurance contributions) and employee income taxes.
The IRS additionally offers a voluntary certification program for PEOs operating in the US.
Additionally, PEO solutions are regulated differently based on different states in the US. For example, the New York Professional Employer Act mandates all PEOs operating in New York to register themselves with the Department of Labor before starting their business operations in the state. Enrolling with the Department of Labor also brings other mandatory obligations and regulations to PEOs (including compulsory contributions to the Unemployment Compensation Fund).
Similarly, strict regulations by the HMRC (the tax authority in the UK) apply to the UK-equivalent PEOs (alternatively known as umbrella companies).
Therefore, different rules and regulations apply to a global PEO solution based on their country of operations.
The Working Mechanism of a PEO Solution
When a PEO solution is working with a client (i.e., other businesses), there are no particular steps or a standard process, considering:
- Each client’s business requirements are different and,
- The way each PEO firm operates is different.
However, enlisted below are broad steps that a PEO solution would follow:
1. Negotiation of services: The first and foremost step is when a PEO service provider and the client company discuss the required services. Such services can include (but are not limited to) recruitment, benefits administration, payroll processing, tax withholding, etc.
2. The signing of an engagement contract: Once both parties discuss all the required services, the PEO solution, and the client company will sign an engagement contract (also known as an agreement) that outlines the responsibilities of each party and how the PEO will provide its services.
In some instances, the PEO service provider will also outline a portal wherein the client company can check the payroll status of their employees.
3. Recruitment or staff acquisition: Sometimes, a client company already has in-house employees or contractors working with similar responsibilities. In such cases, the PEO can also collaborate with the existing in-house employees as PEO’s employees.
However, in cases where the client business is looking to expand internationally, the client does not have full-time employees or contractors with a similar role. In such cases, a PEO helps recruit on behalf of the client.
4. Employee onboarding: Most countries globally have made it legal for employers to offer an employment contract when hiring an employee and ensure that each employee has their payroll set up. This process ensures that salaries, social security contributions, and the employers (or the client company) withhold necessary income taxes.
A PEO solution carries out all of the compliance-related aspects.
5. HR management and ongoing administration: Ensuring that the client company processes payroll, renewing contracts, termination process, and submitting necessary documents to regulators and other tax authorities are conducted by the PEO service provider.
Difference Between PEO Services and Global PEO services
A global PEO (alternatively known as an international PEO) provides PEO services for businesses globally and facilitates global hiring rather than limiting national employment and recruitment.
They ideally engage to be a part of a business’ globalization strategy or international expansion plans. However, sometimes, it also focuses on regional expansion. In such cases, they are known as Asia PEO, Europe PEO, etc., based on their operating location.
Including carrying out similar services as a local PEO service provider, a global PEO provides services that include:
- Global mobility: When businesses have a global team operating across international borders, they must ensure that their employees comply with the visa and immigration requirements.
As a service provider, they ensure that they advise you on the appropriate and necessary arrangements.
- International expansion strategy: A global PEO solution advises businesses on the most suitable options for structuring an international expansion. The advice includes international contractor management, outsourcing options across different countries, potential mergers and acquisitions, etc.
- International payroll processing: As a platform, it helps facilitate payroll across their clients’ countries.
For example, suppose the platform has a client with employees in India, the UK, and the US. In that case, they ensure that the payroll process for each country is processed efficiently and compliantly. The clients are then invoiced monthly for processing payroll for their employees across different countries.
- International recruitment: As a platform, they are known to be well connected in hiring and recruiting staff across borders. Therefore, they can advise businesses on the countries that provide options for acquiring the most skilled and educated talent for different industries.
In some instances, they can also help find and appropriately onboard talent for key business roles, such as regional managers in a particular location.
- International compliance advice: As a service, they have a team of professionals who can provide relevant advice on tax and payroll requirements for internationally mobile professionals.
An example is when employees are temporarily based out of a different country but are paid in their base salary and currency. In such cases, it can ‘shadow payroll’ arrangements to meet compliance requirements.
Pros of Using PEO Services
With the way a PEO solution operates daily, it brings in many benefits, which include:
AN AMAZING TIME-SAVER
Human resource management isn’t simple, especially when you handle working for you from different parts of the world.
The process does consume a great deal of your time. When you avail of PEO services, the trusted third party shares all your company’s HR responsibilities. So, you don’t have to handle it all on your own anymore.
This can give you time and space for other critical entrepreneurial activities.
ACCURACY LIKE NEVER BEFORE
The involvement of complex calculations is what makes global HR management complex. Even little mistakes result in massive expenses when it comes to payroll processing, tax filing, and more calculations.
With good PEO services, you can easily get rid of this problem. A service provider with experience and expertise can maintain maximum accuracy wherever numbers are involved. As HR management is a core responsibility of a PEO, you can witness high precision that in-house HR teams are struggling to manage until now.
GET COMPREHENSIVE REPORTS AND INSIGHTS
Record maintenance and report generation are two vital parts of payroll processing and other employee management activities.
You cannot manage your global resources efficiently if you do not have transparency into their details so far. To simplify this, a PEO employment service offers to maintain corresponding records on behalf of your organization.
You can also get real-time insights into the day-to-day HR activities and a closer look at your international resources.
BID GOODBYE TO REGULATORY RISKS
The biggest headache in onboarding and managing a remote team is keeping track of the altering labor laws and tax bills of multiple countries. However, this is not a step you can dodge.
PEO services can eliminate this problem for your organization at the earliest. Yes, they always look out for changes in rules and regulations on a global level and keep updating their tax tables synchronously. So, you don’t have to worry a bit about facing regulatory risks anymore.
Additionally, you can learn more by reading the Top 5 Benefits of PEO for Global HR Management.
Finding the Right PEO Service Provider
Speaking of PEO service providers, you have many of them out there. However, if you want it to align with your business requirements, you need to take the time to examine and narrow them down based on the factors below.
WEIGH YOUR HR NEEDS
To pick a suitable PEO service, you need to consider your business model, identify where you need professional assistance, and search for specialists who can cater to your business requirements.
LOOK FOR REPUTED NAMES
Once you shortlist companies that provide the kind of PEO services you are looking for, prioritize companies that have won the trust of businesses like yours. Since they will handle confidential information, you must ensure that you pass on the responsibilities to someone trustworthy.
CHECK EXPERTISE DIRECTLY
Though recommendations are reliable, you need to get in touch with the PEO service providers directly to ensure that they have rich field expertise to handle your business information and produce precise results.
Ensuring that you consider the pricing of the PEO solution will help eliminate the options that do not fit your budget. Pricing can be one of the most significant factors that will help determine viable options for your business.
When you have a global team, it is essential to ensure that your employees can access crucial information related to their employee status, pay, or benefits. Accesses can be given via an app or a web portal.
When weighing your options, consider PEO solutions that can provide necessary access to your staff.
You must ask about the employee benefits a PEO solution offers as a part of a package.
The most common employee benefits you must offer your global team includes health insurance with dental and vision covers, retirement plans, and other statutory benefits (which differ based on country regulations).
Providing such appealing benefits to your staff ensures employee satisfaction.
BUSINESS SIZE AND INDUSTRY
When looking for PEO solutions, you must consider their client base. Having an experience with businesses that are similar to your size and the industry your company operates in will help your provider work more efficiently.
What Makes Multiplier the Best PEO solutions company?
Multiplier employs a unified technology platform to help businesses of all sizes manage, offer employee insurance and benefits, and pay their global talent on time.
We can be your entity in any country, so you don’t have to take the trouble of creating an entity of your own to hire international employees.
We have a constant eye for labor laws worldwide and always keep our tax tables updated. By partnering with us, you need not worry about checking for legal compliance whenever you hire an employee from a foreign country.
To stand by our word, we give you complete transparency into our process. You get real-time insights into global HR management, and we never pose hidden charges.
With us handling your HR wing, you have complete control over PEO HR solutions that suit your business requirements. While we process global payroll, you are the one to approve it.
Get in touch with our consultants today and learn more about how we can get you covered. Your trust is our biggest reward.
Frequently Asked Questions
Can a PEO provide payroll processing and tax services?
Yes. A Professional Employer Organization’s (PEO) main function is to handle HR administration tasks, including payroll processing and tax compliance with labor laws.
Can a PEO help with compliance and risk management for HR and employment regulations?
Yes. A PEO ensures that companies remain compliant with the region’s regulatory requirements, thereby reducing legal risks. This includes staying up-to-date with changes in labor laws, tax regulations, and other legal requirements.
How does a PEO handle employee benefits and insurance?
A PEO is responsible for administering and managing the employee benefits programs while ensuring compliance with all legal and regulatory requirements. Companies can offer their employees competitive compensation packages through PEO while reducing their administrative burden and costs.