What is a PEO – Professional Employer Organization

what is a peo

What is a PEO? A PEO, or “Professional Employer Organization,” manages administrative services for companies expanding their operations internationally. These services include payroll, recruitment, benefits, and more. 

In America, PEOs are often called “co-employers.” Think of a PEO as a your onsite HR department in a foreign country. 

Businesses work with International PEOs  to help with their international expansion projects. A PEO has several areas where it can help companies save time and money during the expansion process:

– PEOs lower costs of providing employee benefits
– Handle payroll operations
– Expand into global markets without needing to establish a foreign subsidiary.

PEOs are usually comprised of experienced employees in the fields of HR, legal, tax, and accounting.

There are numerous challenges companies face when trying to hire international employees. A PEO can ensure full compliance with local regulations and pay workers in their local currency. PEOs can also help with the process of terminating employees with compliance to the country’s guidelines.  

In addition, PEOs take care of health insurance and benefits for the local employees. This helps companies focus their communication on matters of business.

What is a PEO? The Structure of a PEO

PEOs hire employees directly. The client communicates with the employee. This makes the PEO the “employer of record,” which means it takes care of all administrative tasks for the client. These tasks include international payroll, tax distributions, and ensuring legal compliance. 

This relationship reduces costs for the client in a few ways. First, the PEO manages employee insurance and benefits locally. Next, it lowers operating costs in the foreign country by taking advantage of local tax breaks and affordable workers. 

As mentioned before, the relationship between the client and the PEO is referred to as “co-employment.” This means that the PEO and client share certain responsibilities in managing the employment process. The dynamic can vary depending on the contract, but the traditional process works like this:

The employees communicate with the end client and satisfy the requirements of their specific role. The client spends most of their time working with their foreign employee. The PEO manages HR, payroll, taxation, and ensures compliance with local regulations. 

Take a look at our step-by-step guide to successfully partner with a Professional Employer Organization:

How does a PEO work?
How does a PEO work?

What Services Do PEOs Offer?

HR – PEOs have a strong understanding of local labor laws and regulations. The HR service will focus on being compliant with local, state, and federal employment regulations. PEOs stay up-to-date as regulations change over time to maintain compliance for the duration of the partnership. 

Payroll – PEOs deliver payments to local employees and contractors, in addition to calculating tax contributions and making direct deposits. As managing payroll in multiple countries can be challenging, a PEO considers the varying time zones, currencies, tax rates, and exchange rates to deliver a comprehensive global payroll solution.

Benefits – PEOs work with local health insurance companies to provide employees with vision, medical, and dental benefits. PEOs can provide retirement saving funds, PTO, sick leave, and other benefits commonly found in employment contracts. Also, PEOs will coordinate disability, worker’s compensation, termination pay, and other benefits offered by the client.

Is a PEO Right for Your Business?

From startups to Fortune 500 companies, any size of business can hire a PEO to manage HR, finance, and administrative functions. However, small to medium-sized businesses have the most opportunity to achieve growth while working with a PEO. 

Because these small to mid-sized businesses often lack expertise of foreign HR and legal requirements, outsourcing to a PEO makes the expansion process run more efficiently. Working with a PEO allows the company to focus on managing their business without needing to worry about the complexities of these areas. 

Large Fortune 500 companies will often work with an international PEO in cases where the cost of opening a company is too expensive in a given country. Although larger companies will have more payroll and HR specialists on staff, the time and bandwidth necessary to manage a global workforce may too complex for the in-house team to handle. Additionally, if a company has decided to expand their operations into countries where their staff does not speak the local language, a PEO can utilize its local language speakers to create a smoother stream of communication between the local professional and end-client.

For businesses looking to hire their first foreign workers, PEOs make the hiring process significantly easier to manage. If a company is looking to hire employees in more than one country, they will need to work with a global PEO. A global PEO manages payroll, HR, and benefits for a company that has employees in more than a single country. 

5 Benefits of Partnering With an International PEO

1 – Faster Setup
Because PEOs have local entities, companies don’t have to wait to receive approval to begin hiring in their desired country. This allows businesses to expand more quickly and often hire and onboard workers in less than a week.

2 – More Affordable
Thanks to the fact that companies aren’t required to establish their own legal entity, working with a PEO leads to large cash savings. PEOs also apply their expertise on local practices to help save on administrative costs. 

3 – A Payroll Management Solution 
Establishing a compliant payroll solution can be difficult for companies expanding globally. Because each country has their own set of laws regarding payroll, managing payroll in multiple countries can be a nightmare for HR departments. By streamlining payroll procedures and keeping local employees happy with on-time payments and benefit allocation, a PEO is able to take the stress out of

4 – Ensuring Full Compliance
With PEOs having local entities in most countries worldwide, clients can receive guidance through hiring and onboarding professionals internationally. PEOs also manage HR, payroll, and additional functions with full compliance to the country’s regulations.  

Also, PEOs specialize in arranging proper tax withholdings from employee compensation and making sure employees are receiving the proper benefits. 

5 – More Opportunity + Less Risk
Sometimes companies will try and test a foreign market before fully opening operations in that country. This practice is usually very costly and comes with its own set of risks. By partnering with a Global PEO, companies can mitigate the risks and costs associated with opening their own subsidiary. 

Working with in-country experts helps ensure full compliance in matters of HR, taxes, benefits, and legal regulations. 

How GlobalPEO Can Help

At GlobalPEO, we strive to make global expansion as simple and affordable as possible. 

Our mission is to successfully connect amazing businesses with our entities located in 160+ countries around the world. 

By helping companies expand into international markets, we save our clients precious time and money from the hassle of needing to set up their own entities within each country they wish to operate. We judge ourselves based on the success and happiness of our clients and partners. So we are proud to feature the highest compliance rates with an industry pioneering pricing model. With a complete breakdown of local guides for expanding into virtually any country in the world and providing key insights into questions like “What is a PEO?” our platform gives businesses all of the tools they need for a successful business expansion.

For every business that has dreams of expanding globally, GlobalPEO delivers the exceptional experience and services to make it happen. 

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