As companies expand, it often makes sense to recruit abroad to take advantage of a broader range of skill sets and experience and even make cost savings in some areas.
Taking on international talent, however, is not a simple process. You will need to consider varying employment laws, taxation, and other legal obligations around the world. This is why Professional Employer Organisations (PEOs) and Employers of Record (EORs) exist; to help businesses deal with the complexities of international hiring and employment and make global business expansion easier.
What are PEOs and EORs?
A Professional Employer Organization (PEO) is an outsourcing firm that helps companies hire internationally.
Companies based outside of the United States tend to use Employers of Record (EOR) organizations instead.
The principle behind these outsourced employment organizations is a simple one. Imagine you have just discovered that a line manager has authorized four employees to work from home in Spain when your business is based in the UK. In order to meet all of your tax, social security, and employment law obligations (never mind corporate tax issues), there will be significant administration to undertake – it could take up to 12 weeks to create a Spanish entity and complete the necessary registrations.
What Services Do PEOs and EORs Provide?
The aim is to take away the administrative tasks associated with employment, and a typical scope of services would cover the following items.
Human resource management
All aspects of HR administration including onboarding and existing employees. However, the end client usually retains the final say in how staff are hired and fired.
Health and safety
If you have employees working from home, this makes their home a workplace. In some jurisdictions, this might mean the employer must carry out regular physical inspections of the work area and equipment used.
This should cover all aspects of the payroll process, including the gross-to-net calculation, payroll reporting, remittance of taxes to the authorities, and of course, the delivery of net pay to the employees. A PEO or EOR can be particularly useful if a jurisdiction requires salaries to be paid from a bank account held in that country.
Workers’ compensation insurance and employers’ liability insurance
The PEO or EOR will source appropriate cover for the workforce and present the various options available in a country.
Appropriate retirement benefits
Many pension plans will not want (or even be able) to operate across borders into another jurisdiction. The PEO or EOR will be able to suggest appropriate structures to select to ensure the employees are covered. Professional Employer Organizations (PEO) and Employers of Record (EOR)
Time and attendance tracking, accident reporting, and compliance reporting regarding employees’ employment law rights grow ever more complicated. The PEO or EOR should be able to offer the most modern and compliant systems available in a particular marketplace and at a price the client (as a small entity) would struggle to achieve.
Training and development
Many countries now require employers to actively track and offer continuous professional training opportunities. PEOs and EORs will ensure training and development is offered to the employees they recruit on your behalf.
What is the difference between a PEO and an EOR?
Both PEOs and EORs offer a consultancy-like service to companies based in other countries for local employment needs. Some places make no legal distinction between PEOs and EORs, yet in others, like France, the PEO model isn’t legal, but EORs are widely used.
PEOs and EORs manage HR tasks, including payroll, employee benefits, and tax deductions. EORs however, go one step further than PEOs to employ workers on behalf of their client companies. In short, EORs employ staff on your behalf and are responsible for international compliance, whereas PEOs don’t take on these responsibilities and require you to own an entity in the country you’re employing in.
For a more detailed look at EORs and PEOs, the important considerations you’ll need to make and the differences between these types of organizations, download our PEOs & EORs guide.