A Beginner’s Guide to Professional Employment Organisations (PEO)
10th June 2019
The phone rings at PEO Worldwide’s headquarters in Birmingham. It’s a new enquiry! A business headquartered in the USA has identified some great talent in Europe and they outline their three options to us:
To engage the person as an independent contractor.
To register their own entity and employ directly.
To use a Professional Employment Organisation like PEO Worldwide.
Option one usually deals with itself because “contractor or employee” is a determination of the situation rather than a choice. In most jurisdictions, if an individual works full-time for just one business, they would be considered an employee. A true independent contractor dictates their own work patterns, carries their own branded business card and may have multiple client’s businesses for whom they work.
Of course, this doesn’t stop some from operating “under the radar”, using a contractor relationship to avoid paying employment related taxes or providing the statutory benefits which would come with direct employment. But for most, understanding that, if and when the relationship between individual and company unravels, there is a very real risk of a retrospective claim of an employer / employee relationship (and all the accrued) liabilities which come with that) is sufficiently off-putting.
Option two can often seem like a good choice. The business wants to do things properly, they are prepared to pay the proper employer taxes and to offer paid time off and statutory benefits as a minimum. Indeed, registering a new business entity is straightforward and not terribly expensive in many European countries. The issue, however, is that registering an entity is just the tip of the iceberg. The infrastructure needed for compliant employment will include a bank account, a locally compliant employment contract, a payroll registration, ongoing payroll management, benefits schemes, retirement savings plans, HR management and, in the case of the EU, an understanding of GDPR compliance. These are all completely achievable and will be the right choice for some businesses but be prepared for a resource heavy and expensive process with a timeline likely to be several months before the new entity is ready to employ.
Option three, using PEO Worldwide, is often new to our prospective clients. So what is a PEO and when is it a suitable choice for employment overseas? PEO, or a Professional Employment Organisation, is a third-party business already set up to act as the legal Employer of Record on behalf of the client. A co-employment relationship exists with PEO Worldwide taking care of the payroll, benefits and HR elements and our client dictating the day to day activities expected of the employee. PEO Worldwide ensures that all the correct taxes are paid, the labour laws of the country are adhered to and the employment situation remains compliant. The PEO solution is ready to use at short notice and, unlike with option two, there is no legal entity to wind down should there no longer be a need to operate in the foreign jurisdiction.
In summary then, all three options are valid in their own circumstances. But if it is determined that an employer / employee relationship exists, if there is insufficient time or resource to register a new entity and set up to employ directly, then PEO Worldwide can offer an affordable, turnkey solution to help your business grow overseas.