Despite the COVID pandemic, so many businesses today operate globally; and will continue to do so. But if your company operates across multiple countries, or wants to, then it can be difficult for your HR people get their heads around complex legal and local regulations regarding taxes, super, salaries and employee benefits that may be in force in a particular country. For smaller companies especially, a DIY solution may entail risk, cost and time factors that are overwhelming, especially if you intend a toe-in-the-water strategy of starting small and growing your business there over time. To simplify and streamline their global expansion plans many smart companies, big and small, are utilizing various workforce management strategies: PEO (Professional Employment Organisation), GEO (Global Employment Outsourcing), (AoR) Agency of Record and EoR (Employer of Record) .
But which one is right for you?
PEO, GEO and EoR — what is the difference?
A PEO (Professional Employment Organisation) is a third party service commonly used in countries such as the USA, where employment requirements can vary significantly between states and employee health and medical benefits must be provided. For smaller companies, meeting all these different rules and offering benefits is too complicated to tackle on their own, and so they will contract the services of a PEO.
Rather than assuming the full legal employment role, a PEO company co-employs the worker alongside you. The PEO takes responsibility for the administration of the payroll, benefits and HR support — leaving you to direct the daily tasks of the employees and focus on the key priorities that impact the business.
The PEO model offers several benefits and advantages, among them:
- Flexibility: PEOs allow clients to hire full-time employees (not contractors) risk free without having to set up a legal entity in the state or country they are looking to operate in
- Local knowledge: Using a PEO allows employers to get a firm handle on all local laws and regulatory requirements, placing the compliance requirements and international payroll solutions in the capable hands of the local organization.
- Cost: PEO’s can save you some cost by allowing employers to hire local workers without going through the expense and hassle of setting up a local office. PEO’s will charge a fee for their services to your company and these costs can vary by PEO.
- Time: A PEO gives employers an opportunity to put workers with the relevant skills in place in a fraction of the time it takes to hire through more traditional means
Most important of all, in the United States, the PEO ‘co-employment’ model is recognised by law. Throughout the rest of the world however, things are not that simple. In most cases, you will not have your own an entity in the host country – and that’s why most companies choose to leverage a GEO third party model along with EoR firm(s).
Like an ‘international PEO’ (IPEO), GEO is an acronym for Global Employment Outsourcing. Popular in Asia, it is a comprehensive international solution that’s ideal for hiring employees abroad when you don’t have a branch or subsidiary in the foreign location.
The GEO structure acts as ‘employers of record’ (EoR) in each country of employment – already set up and ready to onboard, and payroll new employees. This streamlines the hiring process and ensures that employers are in compliance in the host country, where the GEO partner relies on their local partners and experts.
The GEO service is a perfect fit for you if:
- You don’t have a local entity set up already
- Your company is just testing out a new foreign market
- Your company does not have capability to pay the worker in local currency
- Compliance and cost are major factors for your HR strategy
- You want to have global access to recruit top talent
- Managing risk is a priority
In addition to payroll and on-boarding, and extensive local knowledge, a GEO/Employer of Record structure can also support you with:
- Tax administration
- Ensuring all employment contracts meet local standards
- Foreign exchange and international currency wiring
- Insurance, local laws, and regulations
- Arranging work permits and visas for expat employees – where allowed
In reality, the GEO is a more comprehensive employment solution than a PEO for companies that are hiring abroad, either short or long term. The GEO, acting as or partnering with an EOR, literally handles every aspect of employment administration on behalf of the end client. And while there is a single GEO structure, there can be many EORs employing locally in multiple host countries.
Like any business strategy, using a GEO/EoR structure has pros and cons that have to be weighed against the other options available.
When you consider all the steps involved in establishing a foreign entity – company registration and drafting employment contracts etc – plus and the language and cultural barriers that are so often involved, there is real value in having the GEO take care of all your foreign employment issues. Everything happens quickly and easily, and the GEO is ready to take on new hires without delay.
The GEO model offers you, with its EoR structure, a legally recognised employer in the foreign country, not just a payroll provider. They can also give you valuable local knowledge, expertise and on-the-ground experience. Plus your employees have access to a tangible resource that can support their administrative needs, regardless of the location of your home office.
A GEO service can help manage the costs of hiring overseas employees, especially if you are entering multiple countries or building a remote team across regions. Further, the GEO – as a separate entity – can help insulate your company from permanent establishment corporate taxation, which is often triggered when you set up a branch office for any reason.
Reduce Risk and Meet Statutory Requirements
The biggest risk when hiring overseas is non-compliance with unfamiliar employment and tax laws, and the GEO ensures that you can meet all statutory requirements. This becomes even more important when hiring local employees, who may be more familiar with their own country’s labour rights and protections than your HR department.
The GEO will make sure that you are providing all the insurances required in the host country, including health cover, professional liability and workers’ compensation etc.
At CXC we understand that no business solution is perfect for every company, and here are a few reasons a company might choose not to use a GEO:
There is, of course, a cost for the GEO service and while the fee is not excessive, some companies might prefer to do things on their own
Loss of Control
It may be difficult for some HR professionals to hand over the breadth of employment and payroll tasks to a third party in a foreign country, even when the GEO has the necessary experience and expertise.
Doesn’t align with overall business strategy
Many large multinationals, for example, are equipped to enter new markets and handle the expense of setting up an entity all by themselves; they may not need any local partners to assist.
To many people, the PEO and GEO/EoR/AoR service models may appear quite similar, but there are also differences which may become important when you consider your overall objectives, the number of employees being hired, a company’s long-term commitment to the country, and the cost of paying for the service vs the cost of setting up an entity etc. To decide which model best suits your precise needs, it is recommended you consult with an experienced global provider like CXC to ensure you make the right decisions from Day One.
In addition to its advisory role, CXC also offers a range of GEO and EoR services to ensure a streamlined approach to your workforce management regardless of talent source, as well as clear accountability for all stages of a contingent worker’s contract through a single provider – all aligned to your HR strategy. CXC can also support your new market entry needs by providing business premises to house local, foreign/expat and remote workers.
With CXC’s GEO/EOR and PEO services you outsource the hassles and outsource the risk. For more information do not hesitate to contact us on firstname.lastname@example.org, call +65 6536 0334 or visit our Solutions page.