Role of PEO in International Business Expansion
Whether you’re a small business in the United Kingdom or you’re turning over millions of dollars in the United States and are ready for a new challenge, international expansion could be the most sensible option. Indeed, having ‘cracked’ one country and enjoying consistent revenue, the next logical step is to do the same in another territory, and take your business global.
One way to enter a new market with minimal risk is by working with a PEO - also known as a Professional Employer Organisation. Below, we put together an introduction to the technique, and share with you the greatest benefits - and, in some cases drawbacks - of this method.
Before we go any further, it’s important that we outline exactly what a PEO is. Known as a Professional Employment Organisation, a PEO can be used to help you expand your business into new markets, hiring foreign personnel without having to form a legal entity within the country. Whilst the concept sounds complicated, the truth is that it’s a simple process, meaning you outsource employer responsibilities, such as the payment of wages, taxes, and human resources, to another department or company, who will be responsible for employing that talent.
Not only does this mean that you do not directly employ the new recruit, which saves you time and reduces costs, but it gives you control and full day-to-day management of your new employee practically overnight. Although some responsibilities will be handled by your PEO, you’ll still be the ‘point of contact’, and manage and direct your staff and utilize their skills.
PEOs save time and money
Perhaps the biggest reason why companies choose to hire through a PEO is that they can save a great deal of time and money throughout the process. When hiring through a PEO in Costa Rica, for example, you won’t be burdened with the costs of applying for temporary residency within the country in order to form a business, which currently stands at $50,000-200,000.
As a small or medium-sized business, the truth is that finding $200,000 to start a business in a new country simply isn’t achievable or realistic, even with investment or loans. The same can be said for multinational businesses that simply want to hire one or two employees within the country; using a PEO instead cuts down on costs associated with forming a new business and makes expanding into Latin American countries much more affordable and accessible to all.
Of course, you’ll need to pay to access a PEO, and in time as your company expands within a new country, you may decide to form a company, but PEOs should be considered ‘stepping stones’ on your journey and help you to reduce the risks and costs associated with expanding.
Accessing local support
Another reason why so many businesses choose to access companies that offer employment outsourcing is local support. Navigating and overcoming challenges in a new country can be hard work, and if you have limited knowledge of the territory, it can be tough to make things work out. When you choose to partner with a company that offers PEO, you’ll know that you have a local contact who will be on hand to answer questions, ensure you’re making the right decisions, and most importantly, ensure you follow local laws and business regulations.
For example, every country will have its own rules regarding employees and their benefits - some might expect you to pay their salary when they’re off sick, whilst others may require you to give employees a minimum number of holidays per year. Each and every country is different, and so a PEO will ensure you remain compliant.
Freeing up time for your business
As an entrepreneur, you’ll know that time is important. Even wasting an hour of your day can cause a backlog of tasks that must instead be completed in your free time, meaning you don’t get home until late and your personal life suffers. The good news is that it doesn’t have to be that way and that by carefully managing your workload and responsibilities, and by outsourcing things such as recruitment as part of an international expansion, you’ll have more free time.
There is a great deal of administrative burden associated with not only launching a business in a new country but managing and recruiting for a new employee. A PEO, on the other hand, can work with you to find the most appropriate talent for your needs, meaning you can focus your time and attention on working directly with employees and developing your business globally.
How to thrive using a PEO
Before you go full steam ahead and work with a PEO for your business, it’s important to weigh up the pros of instead forming a legal entity within a new country. Not only will you have full ownership of your company, rather than having to pay a PEO for your employee, but you will be directly responsible for all aspects of your staff and their management, increasing productivity and reducing the chances of misunderstandings, unpaid salaries or miscommunication in HR.
Another reason why consider forming a local company is that there are many local businesses who can assist in the formation of your business, and registration with tax authorities. Indeed, through a Power of Attorney, a company can be formed in your name without you having to step foot in the country itself, although there are some added costs associated with doing so.
PEOs, on the other hand, offer a more simplistic solution. In order to maximize your investment, you should clearly establish the roles and responsibilities of your employees, and maintain a constant dialogue with them to ensure their job satisfaction and to maintain positive relations. You could decide to introduce the employees to your human resources department at your head office or even experiment with employee relocation programmes or temporary overseas trips.
The truth is that deciding between a PEO or a company formation is really down to your business - and no decision is the wrong one. Whatever you decide to do, take your time, read and research all of your available options, and only work with a company or individual that you can trust to take your business to the next level internationally. We wish you the best of luck.
Seasoned Business and Investment Professional in Latin America. Craig Dempsey is the CEO and Co-Founder of a leading multi-national group, that specializes in the provision market entry and back office services in the Latin America. Craig holds a degree in Mechanical Engineering and a Masters in Project Management. Craig is also a veteran,...