Once you have decided to expand your business to another country and very possibly to a completely different business environment, you will have to rethink your overall strategy so that your business will have the best chance of success. One essential issue that needs to be reconsidered is how to handle all human resource functions while operating abroad. Several questions will pop up: How can I hire staff in the new country? What do I need to consider when I hire local staff? How do I ensure that all employment requirements are met so that I stay compliant with local authorities?
These are just some of many HR matters to take into consideration in initial expansion phase of your company to a new market with new labour legislation. It is important to assert that your employees follow the company’s strategies and represent the company in the best manner possible. Therefore, an attractive option, which allows you to hire local staff while adhering to all legal requirements, is through the use of a ‘Professional Employer Organization’, or simply PEO.
What is a PEO?
A PEO, also called ‘Employer of Record’, is a service company that takes control of all Human Resource tasks, responsibilities and functions in a specific country. In theory, a company can outsource its employee responsibilities to the PEO and the PEO, in turn, oversees the employee’s payroll, tax payments and benefits management, among other functions. You as an employer will retain control and direction over your employees without having to worry about the local labour laws in the country where your employee is operating.
How can a PEO help during Business Expansion?
No matter if a company is small, medium or large, it can make use of a PEO service during its business expansion into a new market. The PEO acts as a ‘co-employer’ and the worker remains under the employer’s management control, while the PEO remains responsible for all Human Resource related tasks and functions. Thus, it is one of the easiest ways to expand into a foreign market without having to set up an independent legal entity in the country itself. During the initial set up phase, you are able to familiarize yourself with the local business environment in order to plan for future operations. A PEO a useful tool, which allows you to enter a market while allowing a 3rd party (The PEO) to take all responsibility involved in complying with local regulations.
What is in for you as a company?
Employing a PEO can provide you with several advantages that will benefit your business expansion immensely. To begin with, a PEO you help you to overcome different administrative burdens that are present in all corners of the globe. This is particularly true when you want to expand to several countries, all with different administrative and human resource practices, procedures and norms. Second, you are able to concentrate on the core business of your company without having to tend to the local HR regulations. This still allows you to manage your foreign employees in a very direct way. Your PEO will ensure that all the local administrative laws are adhered to, allowing you to continue to concentrate on the main functions of the company (i.e. sales, business development etc.). The last and most significant advantage for a business looking to expand through using a tailored PEO solution is money and time. Since you won’t need to establish a Human Resource department or even a local independent entity in the country yourself, you will save time, money and resources that can be spent on developing your core business.
Megan Totka from the magazine ‘Forbes’ summarizes: “If money can be saved using some form of outsourced HR, more funds will be available to invest in core activities—areas that will, in the long run, fuel success.”
Why is HR so important?
Going hand in hand with money savings is the improved control over your budget, being able to minimize costs. In addition to saving money on establishing and maintaining a local company, other savings can be made in relation to insurance and health care packages for your employees, through using the local knowledge of your PEO. Additionally, a PEO might be able to discover labour market trends and is, therefore, able to provide a good pool of specialized workers that fit optimally with your company.
Furthermore, in times of expansion, you want to be sure that all your employees are on the same page and that company values are shared by all. Therefore, you as a company together with the PEO need can work together to ensure satisfaction in the workplace, including the guaranty that conflicts are resolved and positive working conditions exist.
Human Resource Management is arguably the most important matter to tackle before, during and after your business expansion into a new country. HR is not only important for ensuring employee satisfaction, but also to ensure that your budget is spent wisely, employee performance is maximized and conflicts in the workplace are resolved.
Generally, the business objective should be to minimize costs while growing your client base in your ideal target market, but how do you manage that without having the specific knowledge of legislation present in another country? A Professional Employer Organization can significantly reduce the administrative burden of local labour laws and employee benefit requirements so that you and your business can concentrate on the essential challenges of business expansion. As Joe Worth, contributor to the magazine ‘Entrepreneur’, points out: “Ordinarily, the savings on group health and benefit plans alone will more or less outweigh the cost of hiring a PEO to tackle these duties. But don't forget the peace of mind that a PEO offers.”