What is a PEO and Why Global HR Leaders Should Care

May 11, 2017

Professional employer organizations, or PEOs, are one of the best kept secrets for small and mid-sized businesses looking to scale quickly. Many talent leaders are familiar with common support channels for HR such as staffing, consulting, and benefits brokers. But PEOs provide a different kind of service that enables businesses to more effectively manage risk and compliance, while becoming more agile and competitive on a global scale.

More than seven in ten employers with global operations are at risk of not understanding local employment requirements, based on preliminary findings in Papaya Global’s 2017 Global HR Practices Survey.

This competency gap clearly needs to be filled, and one of the fastest ways is through a PEO service. At the same time, PEOs have their own limitations, which opens the door for blended solutions that harness software and service to help employers meet their business objectives.

What is a PEO?

What if your business was able to offload the payroll, compliance, and other complex processes while still maintaining a base of motivated, highly competitive talent? That’s the value a PEO has to offer. So, what is a PEO and how does it work?

In essence, a PEO is a service firm that allows employers to outsource specific tasks and processes related to employee management. This is accomplished by the PEO hiring the client company’s employees, becoming the employer of record for compliance purposes. This process is referred to as “co-employment.” While the PEO manages and maintains payroll and record keeping for the client employees, the client is able to direct the daily tasks of the employees, focusing on the key priorities that impact the business.

Four Key Benefits of a PEO

This arrangement clearly has benefits for the client, as it allows the firm to keep its customers and business needs at the top of the agenda. In addition to that focus, there are four areas clients benefit from leveraging a global PEO: flexibility, in-country awareness, cost, and time.

Flexibility:

1. PEOs allow clients to hire full-time employees, not contractors, quickly. Instead of trying to manage the complexities of each country’s limitations on contractors, PEOs allow firms to hire employees that can get the job done, creating a stronger employment relationship and more stability than a flood of temporary workers could provide.

In-country awareness:

1. One of the biggest challenges for employers is understanding the local customs, culture, and legal requirements. Using a PEO allows employers to sidestep these tricky issues, placing the compliance requirements in the capable hands of the local organization.

Cost:

1. Attempting to set up an entity in a foreign country can be incredibly expensive and riddled with challenges. PEOs allow employers to hire local workers without going through the expense and hassle of setting up a local, permanent establishment.

Time:

1. The preliminary findings from Papaya Global’s 2017 Global HR Practices Survey point to one clear fact: the number one reason employers hire global talent is to create a global footprint close to their target market. And in instances where firms are seeking global talent to meet the needs of their customers, time is of the essence. A PEO gives employers an opportunity to leapfrog the competition, putting workers in place in a fraction of the time it takes to hire through more traditional means.

Limitations of a PEO

Despite these benefits, even this employment approach has a downside. Many PEOs are entirely service-based, which means that there is no technology in place to keep resources aligned. In addition, there is often broken communication between suppliers, PEOs, and employers.

This entire process is challenging to oversee from a business perspective, offering little transparency into operations. In fact, more than half of respondents to the Global HR Practices Survey said that a lack of transparency is one of the most challenging aspects of managing a global workforce.

That’s where solutions like Papaya Global come into the picture. The firm’s technology platform helps to standardize and bring transparency to this network of global suppliers, creating lasting value for organizations and disrupting the marketplace. The system acts as a nerve center for managing the disparate activities that go along with global employment relationships. Eynat Guez, Co-founder of Papaya Global, explained, “What really separates us is being transparent and cost effective. We offer a platform to manage the employment process in an efficient way, creating clear communications among our clients and their PEOs and other suppliers.”

While PEOs can provide value for employers, they can be augmented with technology solutions to help employers get the best of both worlds: the flexibility and cost-savings that a PEO can bring to the table and the transparency and standardization of a technology platform underpinning the variety of relationships necessary to operate a global business. At the end of the day, hiring and managing a global workforce is a challenging prospect, and it’s best to find good partners to bring the expertise and scalability where they are needed most.

Written by: Ben Eubanks, Principal Analyst