Human resource outsourcing is an easy and compliant option for expansion without setting up a local entity.
Hire Employees in the US: How Does an International PEO Work in the US?
In the US and many other markets, an international PEO is a strategic way to hire employees without having a legal entity there. The PEO company legally and compliantly hires and pays your employees, while you directly manage the employees and their work. Once the client company contracts with a PEO, the PEO will co-employ the client’s worksite employees in the US. Essentially, employer responsibilities are handed over from the client to the PEO.
The PEO, you, as the client, and employees share a co-employment relationship. The PEO handles payroll services in the US and reports, collects, and deposit employment taxes with local, state, and federal governments. As an employer of record, the PEO will offer a human resource and benefit package for your employees. Through this contractual arrangement, the client company can focus on daily business operations while the PEO adheres to US employment laws.
1. PEO Solutions Offer a Flexible International Expansion Strategy
Employment solutions give companies the opportunity to test out the local market before they commit to setting up a new legal entity. By hiring an employee in the US, business owners can bridge the cultural gap between their company and the market in the US by utilizing the knowledge of their new team member.
The prior knowledge this employee has will help your company tailor your business efforts appropriately to cater to the culture and audience. Partnering with a global PEO means that you have the benefit of managing your employee in the US directly under your authority, while the PEO solution covers hiring, payroll, contributions, and more even if you don’t have an entity.
2. Human Resource Outsourcing and Compliance
The legal business requirements in the US will differ to other countries, and businesses need PEO solutions that are compliant for when they enter into a new market. Some organizations may outsource freelance workers or independent contractors, however, doing so can lead to legal risk.
If a company is discovered to have mislabeled actual employees as independent contractors, they can be subject to financial penalties and other legal violations. This can also negatively affect the company’s global expansion efforts. With a global PEO, companies are able to meet local employment requirements making it an ideal option for businesses around the world without having to set up a local entity in each new market.
3. Cost-Effective for Small Businesses Without Setting Up a Local Entity
In December 2017, the US Congress passed and President Donald Trump signed the Tax Cuts and Jobs Act, which, among its various provisions, reduces the corporate income tax (CIT) rate from 35% to 21%. CIT rates in the USA can vary from state to state and it is something to be considered when expanding abroad. Using employment solutions is an affordable alternative to setting up a wholly-owned entity that would be subject to tax and regulations. You don’t even have to worry about tax rates on entities in the US because your employee is hired through PEO solutions.
A PEO offers “big company” benefits that allow smaller teams to grow, improve productivity and profitability, and to focus on their core mission.
The US is known as the land of opportunity. Expanding your business into the American market can lead to endless possibilities. Let NNRoad help you take your business overseas and guide you through the global expansion process every step of the way. Contact us today!