What is PEO?
PEO services are becoming increasingly popular this year. A professional employer organization (PEO) is an organization that provides human resources (HR) outsourcing services to businesses. In this arrangement, the PEO shares all of the business risks with the other businesses and obtains lower-premium health and workers’ compensation insurance plans. Additionally, the PEO remits business taxes under its own employer identification number (EIN) instead of the businesses’. If the PEO’s state unemployment tax rate is lower than the businesses’, the businesses will be taxed less.
PEOs specialize in connecting small businesses with health and business insurance plans that they might otherwise struggle to afford. The PEO should also handle payroll on behalf of the businesses, and the businesses can add even more HR services to their contract if they desire.
Although your PEO is your co-employer, it won’t have any power over how you run your business. Yes, it can step in for whatever HR needs you to desire, but it can’t execute your actual work tasks for you. Even with your co-employer arrangement, you can continue to run your business exactly as you have been.
That said, it’s understandable to worry that a co-employer could overtake your business affairs. This outcome is highly unlikely, and it’s guaranteed not to happen if your PEO is certified by the IRS or Employer Services Assurance Corporation. PEOs with these certifications must adhere to rigid standards that make for trustworthy company affairs.
THE MAJOR DIFFERENCES BETWEEN PEO SERVICES AND EOR SERVICES
PEOs and EORs have a few important distinctions. PEOs mostly handle HR functions for businesses that already own entities, while EORs provide employment services without requiring companies to open their own entities.
In general, if you do not own an entity in the country where you want to employ a worker, you then need an EOR. On the other hand, if you are working with a global employment partner and they require you to open your own entity before you can hire workers, that partner does not actually provide EOR services.
If broken down into 3 differences in services between PEO Services and EOR Services
- Structure
PEOs and EORs are both types of employment organizations, but they serve different purposes.
PEOs act as your co-employer, meaning you share all risks and liabilities with them. This is why PEOs can help manage your risks, such as facility security and workplace safety.
EORs, on the other hand, are your legal substitutes for employee-facing matters. This means they are fully responsible for and liable to your employees.
- Services
A PEO is great if you want a service to handle your payroll, benefits administration, taxation, workers’ compensation, and risk management. A PEO can provide access to higher-quality insurance with lower premiums.
An EOR can also offer all the aforementioned services, though it often takes on fewer tasks than a PEO. Your EOR may help you hire temporary employees or independent contractors.
- Cost
PEOs charge a flat fee or a percentage of your payroll per pay period. This typically costs $150 to $200 per employee per month, but rates vary depending on the PEO.
EORs have similar fee structures and rates, but they cost less overall than PEOs. This is because EORs fully cover your benefits and insurance plans, saving you money in the process.
| Services | PEO | EOR |
| Structure | Co-employer | Full legal employer |
| Services | More, but not as in-depth | Fewer, but more in-depth |
| Cost | High upfront and long-term costs | High upfront, lower long-term costs |
HOW DID PEOs EMERGE
PEOs were officially born when the National Association of Professional Employer Organizations (NAPEO) was established, recognizing the need for more comprehensive solutions for employment concerns and creating the co-employment arrangement. The term “employee leasing” used to be used to define what a PEO does today.
Statistics show that engaging PEO services can save business owners time and money. Businesses without a PEO spend approximately 25% of their time on the employment paperwork, and also incur significant expenses on employment compliance. In contrast, PEOs help companies to mitigate employee turnover and ensure compliance with intricate labor laws. Also, PEO services have become a cost-effective solution for ensuring compliance – when faced with the intricate employment and labor laws that confront small businesses.
Currently, over 150,000 start-ups and small businesses utilize PEOs. In the United States alone, over 800 PEOs exist in all 50 states.
There is every reason to think that, as employer compliance becomes increasingly complicated, and international expansion continues to accelerate, PEOs will be a crucial part of the business model for many enterprises.
HOW DO GLOBAL INTERNATIONAL PEOS WORK?
A PEO often provides a wider range of services to client companies in order to support international expansion. Sometimes these Global PEOs are known as Global Employment Organizations. The specific services that a PEO provides are outlined in the service agreement with the client company.
General global PEO services
Human resources
PEOs can help foreign companies with a range of HR-related services, including compliance with local laws and regulations, severance pay, and other benefits. They can also provide contracts that adhere to local and national regulations, as well as market norms. This makes it easier for companies to operate in new countries without having to worry about the intricacies of HR law.
Payroll services
PEOs that operate globally handle international payroll processing in compliance with the relevant rules and regulations in their local jurisdiction. This involves using both manual and automated processes to ensure that employees receive the correct wages/salary, with the appropriate deductions made, and that all other payroll-related matters are handled correctly.
Benefits administration
PEOs can offer cost-effective benefits administration for companies of all sizes. This includes annual leave, vacation leave, and sick leave, as well as health insurance, workers’ compensation, allowances, retirement contributions, and other required benefits. By taking advantage of economies of scale, PEOs are often able to secure more cost-effective compulsory benefits than companies could achieve on their own. The PEO also ensures that the right deductions and contributions are made in line with payroll processing. It also regularly reviews compliance and market offerings to ensure that client companies are getting the best deal.
Risk and compliance services
Risk and compliance services are important for minimizing the significant risks involved in international expansion. Global PEOs can help identify and manage these risks, which can include employee complaints/lawsuits, workplace safety requirements, and managing workers’ compensation. They have the resources and local knowledge to determine all the risks that are associated with expanding into a certain country, which can be helpful for small/medium-sized companies and start-ups.
Tax
PEOs calculate and pay the required payroll tax liability and any other tax liability in relation to the employees of a client company. They ensure that client companies best optimize their tax bills, ensuring that any relevant deductions that are allowed in the country of the establishment are made (for example, deductions for health insurance and fringe benefits).
In addition, PEOs can also provide consultation on other tax matters such as international taxation and cross-border compliance.
WHAT TYPE OF BUSINESS CAN BENEFIT FROM A GLOBAL PEO SOLUTION?
Large enterprises
By using a Global PEO for international expansion or to recruit and hire staff who live in another country, large enterprises can benefit significantly. This is particularly true where large enterprises are expanding across multiple countries. A Global PEO can provide a much faster and more cost-effective solution for large enterprises than setting up a legal entity overseas.
Small and Medium-Sized Enterprises (SMEs)
Global PEO solutions can be an effective global expansion solution for ambitious and growing SMEs. Engaging a Global PEO to expand overseas can help you sell products and services in new markets, access a more cost-effective and qualified workforce, and establish a physical presence in new markets. By working with a Global PEO, you’ll be able to focus on what you do best – running your business – while the Global PEO takes care of the rest.
Startups
Startups often need a scalable solution for their human resources. They need to be able to quickly staff up as their business grows. Global PEOs with their international reach and local recruitment networks are able to increase the size of their workforce rapidly and at a lower cost.
Freelancers and contractors
If you are looking for the best human resources for your business, you may find that they are based in another country. Alternatively, existing staff may move overseas. While it can be tempting to engage those staff as freelancers or contractors, often this is not compliant with tax and employment laws. A Global PEO can hire those workers, wherever they are based, ensuring that the business does not attract negative attention from tax or employment authorities.
Non-Governmental Organizations (NGOs) or Non-Profits
Hiring foreign staff can be a difficult process for non-profit organizations (NGOs). In addition to understanding the payroll and tax requirements in each location, NGOs also need to ensure that they are compliant with any compliance regulations that may apply. A Global PEO can help simplify this process by hiring foreign staff on behalf of the NGO. This will help ensure that all payroll and compliance requirements are taken care of, allowing the NGO to focus on its core mission.
WHAT IS THE DIFFERENCE BETWEEN PEOS AND EMPLOYEE LEASING?
PEOs supply employer administrative and compliance services to a client company and its workforce. By contrast, an employee leasing company supplies its own workers, often on a temporary basis, to a client company. Once the assigned work is completed, they will often return to the leasing company, available to be leased to another client company.
As PEOs grew from the employee leasing model, there is sometimes confusion between the terms.
A similar arrangement is a temporary staffing agency that recruits its own employees to be assigned to client companies, usually on a temporary basis. This is common for administrative and manual labor jobs, where there might be a need for short-term ‘cover’ of a job.
PEO SERVICES IN CALIFORNIA, THINGS TO BE FAMILIAR
California is the largest state economy in the United States with a Gross Domestic Product (GDP) of $2.9 trillion in 2018, accounting for more than 14% of the nation’s total GDP. California is known as one of the most technologically advanced and globally competitive states, leading the nation in high-tech exports and venture capital investments. California’s diverse economy includes agriculture, manufacturing, finance, insurance, real estate, technology, tourism, and entertainment. It has consistently been at or near the top for job growth over recent years. The state also ranks first nationally in agricultural production; home to major companies including Apple Inc., Alphabet Inc., Intel Corporation, Hewlett-Packard Company, Chevron Corporation, and many more Fortune 500 companies headquartered there.
California’s economic growth is driven largely by advances in technology, the creative economy, international trade, and other industries. The state is also known for its innovative policies that promote sustainable development, including clean energy initiatives such as the California Global Warming Solutions Act to reduce greenhouse gas emissions. It has a highly-educated workforce and an educated consumer population that support continued business growth and innovation.
When it comes to choosing a PEO in California, there are a few things you’ll want to keep in mind. First, make sure the PEO is licensed and insured. Second, check out their customer reviews and testimonials. And finally, ask about their fees and pricing structure.
For a company to run its operations in a given state or country, it needs to be licensed and insured. Many states require professional employment and staffing companies to be licensed before they can legally operate in a jurisdiction. These laws are designed to protect workers and reassure clients that they are working with properly licensed agencies.
In California, employment agencies aren’t required to be licensed, but they do need to obtain a surety bond and file a copy with the Secretary of State. Talent agencies are treated differently and do need to obtain a talent agency license.
There are also additional requirements for garment workers in California. Any company or agency that provides manufacturers with the services of employees engaged in the process of garment or accessories manufacturing must register with and obtain a valid registration certificate from the Labor Commissioner as a contractor. Agencies must also provide the Commissioner with written notice whenever it enters into or terminates an arrangement to lease or provide employees engaged in garment manufacturing operations.
The Best PEO Isn’t Always the Right PEO
In order to determine the best PEO in California, based on several different factors, you need to know that just because some PEOs have the best score on paper doesn’t mean it’s the best professional employer organization (PEO) for your specific business needs.
• Some PEOs are specialized in working with certain business industries, and therefore offer a variety of services and benefits for businesses in those industries.
• Some PEOs develop partnerships with health insurance companies, which means they can provide you with a wide range of health insurance options at better rates.
• Some PEOs specialize in compliance and legal issues and can help you meet federal and state compliance regulations.
To make sure that you choose the right PEO for your business, you need to assess your business needs and compare them to the service offerings of each professional employer organization. This is the only way to make sure that you get the right PEO for you and not just the best-scoring PEO in California. The score really means nothing if a professional employer organization can’t meet all of your business needs.
In conclusion, as the business climate in California continues to change rapidly, PEOs have become invaluable assets for businesses seeking to stay competitive in the market.
What Is The Role Of NNRoad
NNRoad is a global Employer of Record & PEO provider with a base in the USA. We are able to advise you and your dispatched or payroll employees in the USA on their individual income taxes. For more information on our HR and payroll related services in the United States, please visit our US services page or contact us directly.
