Hint: It's not what you think it is
If international expansion is on your radar, then you’ve likely come across something called international PEO as a potential avenue for adding employees in new locations around the world. Let’s get right to the point: Much of the information circulating about international PEO is mistaken.
That’s because the term “international PEO” largely has been co-opted to describe a practice that, when employed on the global scale, doesn’t actually fall within the realm of a professional employer organization, or PEO.
What’s the real story behind international PEOs?
Often, when people or providers use the terms “international PEO” or “global PEO,” they’re trying to tie a familiar concept in the U.S., the professional employer organization, to a type of outsourcing that helps companies hire internationally. But PEO refers to a co-employment situation, and in most cases, co-employment isn’t an option on a global scale.
Why co-employment doesn’t work internationally
In co-employment, a PEO and its client share legal accountability for an employee. The PEO is responsible for the HR and payroll component, and the client organization takes care of the employee’s day-to-day management. Co-employment is common practice in the United States, but it’s not a model used in the rest of the world. It’s even considered illegal in some countries, such as France and Switzerland.
Another important point regarding co-employment: Both the PEO and the client are legally required to be registered as a company, or entity, in the country where the employees are located.
So, even if you were to find and enter into a (legal) PEO situation outside the U.S., as the client organization, you’d be required to have—or set up—a legal entity in the country where the employees would be located. And that’s a complex and costly undertaking.
This co-employment model, however, is not what others usually are talking about when they reference international PEO. More likely, they’re talking about an employer of record.
What’s an employer of record?
An employer of record is a way for companies to outsource talent internationally without having to set up a legal entity in the country where employees are located. It’s similar to a PEO, in that it splits responsibility of HR and payroll administration from daily employee management. But unlike PEO, workers are fully employed by the employer of record.
Because the employer of record already has a registered in-country company, the client organization can scale internationally, adding workers in new markets without worrying about the expense and compliance risks associated with entity establishment. To distance this type of service from PEO and more accurately describe what’s being provided, we’ve coined the term Global Employment Outsourcing, or GEO.
The Global Employment Outsourcing backstory
When we say we coined the term, what we really mean is we also came up with the concept and practice of Global Employment Outsourcing. GEO wasn’t well known as a service before we started offering it.
In 2010, while onboarding a multinational client to our Global Managed Payroll solution, we discovered that the company didn’t have employer registrations in several of its locations worldwide—meaning, because it didn’t have the required entities in place, it wasn’t paying its employees compliantly.
To give this client a compliant way to pay all of its employees, we arranged legal employment for its workers through our in-country partnerships. The client’s employees would officially become employees of the in-country partners. As employers of record already registered in the countries in question, these partners would ensure that all statutory regulations were followed and benefits were provided. The client company would then be responsible for managing the workers’ day-to-day activities.
Since that first GEO case 2010, we’ve helped hundreds of organizations large and small—from multinational corporations to nonprofit NGOs—expand their presence in countries around the world. Today, we can provide GEO service in over 179 countries, either through our own established entities or via our in-country partners.
How to grow with GEO
GEO helps organizations meet their business growth goals because flexibility and scalability are inherent to the solution. Let’s explore some common expansion scenarios organizations may be encountering:
Scenario: A company is studying how international growth fits into its strategic objectives, but it is wary of the commitment involved in expanding in new global markets.
How GEO can help: GEO lets the company “test the waters,” so to speak, in countries by giving it a vehicle to add a presence in new markets without making the investment necessary for establishing an entity.
Scenario: An organization already has people in a country, but they’re currently working as independent contractors. Because of the scope and nature of the contractors’ work, the organization is flirting with employment and tax violations in the country.
How GEO can help: With GEO, the organization gets in-country expertise on employment, benefits and tax laws, so the organization can utilize talent compliantly and avoid fees or penalties related to noncompliant employment.
Scenario: A company has identified a country critical to its growth plan, but time is of the essence, and setting up an entity there is a long and arduous process. For this company, in this country, the work just can’t wait.
How GEO can help: Although it depends on the situation, with GEO, a company can have workers up and running in the country in as little as two weeks while a company establishes an entity in parallel.
Scenario: During an acquisition, a company gains a workforce in a new country, but not the business entity, so it doesn’t have a way to compliantly pay its new employees.
How GEO can help: GEO can act as the employer of record for the acquired employees and compliantly pay them until the company sets up an in-country entity.
International PEO or global PEO isn’t the answer; GEO is
The scenarios above are just a few of the ways GEO can solve organizations’ diverse international employment needs.
With each of these challenges, the employer of record model that GEO provides is the simplest, most direct way to help grow an international presence. An “international PEO” co-employment model wouldn’t be nearly as swift, nimble or cost-effective. And depending on the country, it may not even be legal.
When evaluating modes of expansion and the providers that enable them, it’s important to have a clear understanding of the services being offered. If a provider is advocating for international PEO, it’s important to ensure that what they’re really talking about is an employer of record and not the co-employment model traditionally associated with a PEO—especially if entity establishment isn’t something your organization isn’t comfortable with or ready for.