PEO definition: A PEO, or Professional Employer Organisation, serves as a co-employer, handling your HR needs in a way that can potentially benefit both you and your employees. In this guide, we’ll look at PEOs to see how they may serve as an HR solution for your business.

How Does a PEO Work?

Here's one thing to note about the international PEO industry: It’s important to clarify that a PEO is not a temp agency. While both can be used to help with hiring and recruiting, a temp agency generally sends you short-term employees to fill a temporary need (hence the name). A PEO is different.

With a PEO service, you’re handing over many, if not all, of your personnel needs. In fact, PEOs like Playroll can handle administrative tasks as varied as:

• Payroll solutions (such as setting up a payroll management system)
• Hiring (and possibly other HR responsibilities)
• Recruiting
• Benefits administration
• Compliance
• Administration of employee-related funds (like unemployment and worker’s comp)

In many ways, an international PEO becomes your business partner. This is why they’re considered co-employer. 

In fact, they’ll be considered the employer for all legal and tax purposes. However, unlike other business partners, a PEO will only be involved in personnel issues. This means they won’t be involved in shaping your business.

PEO vs GEO: Why Use One Over The Other?

So, why would a business need to become a professional employer organization PEO client? Depending on the size of your company, there are a few different reasons why this partnership may benefit your business.

Small or medium-sized companies

A small or medium-sized business can benefit from working with an international PEO like Playroll because they may not have the full resources to handle their HR operations themselves. As the company expands, it may make more sense to outsource HR needs rather than build a department from scratch. 

This arrangement can free your main staff from any HR duties, in addition to providing:

• Better employee benefits – Because PEOs work with numerous businesses, they often have access to better employee benefit plans that may be less expensive for your business to implement. This makes hiring a PEO a win-win for both you and your employees. This also boosts employee retention and reduces employee turnover.
  
• Larger hiring pool – Again, because PEOs work with numerous companies, they’ll often have access to a much larger and more diverse hiring pool than you might otherwise have on your own. This can be a major advantage in helping you find the best candidates to fill your positions. They'll also know which hiring practices are better, whether that's employee leasing or inclusive hiring.
  
• Expertise – Even if you were to start your own HR department, you’d likely lack the immediate expertise regarding issues like payroll, compliance, onboarding, and other personnel issues. Your first hire would likely need to be an HR expert. Because PEOs specialize in human resources, they can easily provide the experts and expertise you need.

While these benefits can be useful for businesses of any size, it’s worth noting that many PEOs will not work with businesses that have fewer than 10 employees. If you’re still at this stage, you may want to wait until your business grows before looking into a PEO partner.

Read about: How to Hire Remote Employees In Other Countries

Multinational companies

PEOs aren’t just for small and mid size businesses. While large companies are very likely to have their own HR departments, it doesn’t mean they can’t also benefit from human resource outsourcing.

In fact, a larger client company may find that a PEO company can offer them invaluable benefits, especially if they’re planning on expanding internationally. These benefits can include:

• Payroll Administration – Staying on top of your payroll needs can be difficult when your company spans numerous countries and handles large numbers of employees. Nothing can start eroding your employee morale faster than repeated payroll errors. Hiring a PEO that can specialize inaccurate payroll can be hugely beneficial to both you and your team.
  
• Compliance – When it comes to laws governing employees and tax filing, things can get complicated—even just on the domestic front. As your business expands, you’ll have to start dealing with different laws from different countries and ensure that you’re consistently complying with them, as well. Working with international experts like those found at Playroll can help you meet all of your requirements and breathe easier.
  

• Trackable data – Working with the specialists at a PEO can also make it easier to track your HR narratives. Trying to take care of this in-house, especially across multiple countries, can be difficult and lead to muddled data. Outsourcing to HR and international experts ensures you’ll receive accurate data to better track your operations.
  
• Worker flexibility – Partnering with a PEO can also give you the flexibility to expand multi-nationally. That means if you have employees who want to go overseas, they no longer have to choose between their job and their desired location. And you don’t have to lose a valued employee.
• Insurance – from health insurance to workers compensation insurance

Potential Drawbacks

While there are many reasons to consider working with a PEO, some potential downsides are also. If the PEO you partner with is reliable, many of these downsides shouldn’t be of major concern. However, you should still be aware of them to ensure the best partnership possible.

• Control – It’s important to keep in mind that you’ll have to give up some level of control when you start working with a PEO. Since the PEO will be in charge of most of your personnel, you should ensure that they’re trustworthy and respectful of your business’s goals.
  
• Devalued HR – If you already have an HR department, they may view your hiring of a PEO as a removal of their responsibilities. To prevent this, you’ll want to talk to your HR team about the reasons you think a PEO can benefit you. In doing so, they’ll see how they will benefit from the PEO as well.
  
• Security – Before choosing a PEO, you’ll want to properly vet their systems and make sure you’re not opening yourself up to a potential security breach. Verifying that your PEO uses top-of-the-line tech and has proper cybersecurity should be a key step in your vetting process.
  
• Disconnect – While a PEO will serve as a co-employer, they’re not equal partners. This means they won’t know your company like you do and may not feel the same passion for what you’re doing. This is why choosing a PEO that you feel comfortable with and that you can trust is crucial. Otherwise, you may find yourself and your PEO rowing in opposite directions.
  
• Cost – Unfortunately (albeit understandably), PEOs don’t work for free. In the long run, a PEO can end up saving you money, but you should be confident that your costs are worth what you’ll receive when you work with a PEO. Before committing to a PEO, clarify their pricing structure so that you can run your own numbers. While most PEOs will charge your company using a percentage of your payroll, different PEOs have different pricing structures. 

Choosing the Right Professional Employer Organization

Bringing any type of partner into your business is an important decision. By taking the following steps before hiring your PEO, you can better ensure you find the right PEO and make the best possible decision for your business:

• Review their technology – Although this was already mentioned in the security concern, a thorough review of your PEO's tech is valuable for more than just security. You want to make sure that you understand how the PEO works and that you can easily integrate it into your systems. It’s always a smart idea to try a demo if one is offered.
  
• Consider their reputation – You want your PEO to make your life easier, not harder. By leaning on their expertise, your personnel needs can be both met and exceeded. Of course, that’s only true if the PEO you hire are experts. Look at the reputation of the PEO you’re dealing with and make sure they can offer the expertise you need.
  
• Consider your business – For the most part, all PEOs offer the same types of tasks, but that doesn’t mean there aren’t specialties. For instance, some PEOs may be better suited for a small business, while others may work well with multinationals. Look at the PEO you’re considering and see how it aligns with your business in particular.
  

• Ensure their support – When choosing to outsource any part of your business, you want to make sure your partner is responsive and available. Check out how your potential PEO handles customer support to ensure you’ll get the level of service you need and expect.

If you think your business might benefit from working with a PEO, then your next step is finding the best PEO available. At Playroll, we believe that’s us. 

Powered by VAT-IT, we have experience working with businesses from a multitude of industries and in a multitude of countries, so we know we have a plan that can suit your business’s needs. Aside from PEO, we also have employer of record services. 

We invite you to look at our easy-to-understand pricing packages and all-inclusive subscriptions, with no surcharges or hidden fees. By partnering with Playroll, you can find the solutions you need to ensure efficient, secure, and expert global HR services.