In a global environment where businesses are more willing and able than ever to operate outside the confines of national borders and to establish operations in multiple locations around the world, some of the biggest challenges revolve around HR, such as the hiring of staff, managing payroll, and labor law compliance.
This is the case for organizations of all sizes, but for start-ups without the resources or established HR processes and procedures in place, it can be even more challenging and can be a barrier to the successful setting up and/or expansion of operations into new locations beyond their ‘home’ territory.
However, a viable alternative, both for start-ups and more established SMEs, is the use of a professional employer organization (PEO) model.
How Does The PEO Model Work?
The key benefit of working with a global PEO also known as an employer of record is that it makes it easier for businesses of all sizes to manage both risk and compliance when operating in overseas markets.
Essentially, a global PEO service provider enables organizations to outsource HR functions —such as hiring, payroll, and tax compliance — when they are taking on remote or overseas staff, as well as enabling them greater access to the best of the local talent pool, all without having to have a locally registered entity in that location.
When you engage a PEO, they become the employer of record on your behalf with regard to employment law and tax compliance. For start-ups, this is especially helpful as it means that you can focus on key functions and growing your business, while the PEO firm manages payroll and employee records.
As an example of how this might work in practice, consider how you might use a professional employer organization to hire in Brazil. This could be on a temporary basis, to test the market, or you might be ready to start operating there permanently.
|Working with a PEO in Brazil|
Brazil is a useful example because of the size of its population and economy, which means it presents opportunities for businesses across all industries and sectors.
In addition, it has a huge potential talent pool, and so while there are likely to be plenty of options, getting the right hires in place without local knowledge could be challenging for a start-up or new enterprise looking to grow. Giving the responsibility to a PEO with greater local knowledge, however, can solve this problem.
For a company looking to expand operations, working with a PEO in Brazil also means that you are not required to set up an entity in the country in order to take on workers; instead, the PEO acts as the employer of record.
This also means the PEO is not only liable for hiring workers and ensuring compliance but will also take care of the associated day-to-day administrative tasks associated with the workforce.
Crucially, however, at the same time, the company itself remains in sole charge of directing workers, in terms of tasks, hours, obligations, etc, and managing the essential operations of the business.
Why Startups Should Leverage The Use Of PEO Solutions
While there are benefits for enterprises of any size in utilizing the services of a PEO, for start-ups, there are several significant advantages.
For instance, using a PEO is especially helpful if a start-up is looking to dip a toe into a new overseas market, as its can do so without having to make the full commitment required in terms of time, effort, and money to establish a legal entity.
On the other hand, arranging to work with a PEO is quick and straightforward to organize, and is significantly easier than setting up an entity. This also has the added advantage, if the venture proves not to be as successful as anticipated, of making it relatively easy to halt operations and close up shop.
This model also makes expansion into other additional jurisdictions easy to do, as a PEO will be able to take care of tax and labor law compliance in any country in which you start operating.
This feature becomes increasingly valuable when undertaking operations in multiple locations at the same time, as your own in-house team is not required to stay on top of the myriad rules and regulations around payroll and tax law that you are confronted with and have to negotiate when you do business in different countries simultaneously.
Furthermore, for any relatively new organization, HR costs can be prohibitive when handled entirely in-house. However, a PEO makes HR provision significantly more affordable for start-ups.
This is not only important in terms of upfront establishment costs but also reduces the cost of ongoing operations, making it more likely that start-ups are able to navigate their way through and survive the challenging early stage of expanding into new territories.
More importantly, anyone who has set up a new SME, or has managed an overseas move or expansion, will know that it requires every ounce of time and energy you have. Empowering a PEO to take care of payroll and other administrative tasks associated with the hiring and paying of people allows business owners instead to focus their energies solely on core operations, without also having to deal with HR, tax, and employment law at the same time.
Some Of The Disadvantages For Start-Ups Of Outsourcing HR
There can, however, be some disadvantages of which start-ups should be aware if making the choice to outsource HR and payroll requirements when expanding into new territories.
For instance, engaging the third party to take responsibility for the hiring process might result in your company’s ethos being influenced or diluted (either directly or indirectly) due to a misalignment of values.
Similarly, it might also be the case that some of the information and processes over which a company would normally expect to have full control have to be shared with a PEO providing services on your behalf.
Your business might also have concerns about the security of a third-party PEO’s systems, as ensuring the security of the private information of workers is essential. Therefore, it is vital to be able to have trust and faith in a PEO’s procedures and protocols.
There may also have to be a cultural realignment within the company itself. Start-ups and small businesses are very directly influenced by the values, outlook, and approach of their founders and early leaders.
In some circumstances, therefore, one of the challenges for small businesses in working with a PEO is to be able to devolve some of the key responsibilities, which is not always easy for some business owners to do.
This can be especially challenging for some as it requires not only handing over responsibility when it comes to the hiring and management of workers, but also because it can mean hiring remote or overseas workers with whom the company itself does not have direct knowledge or interaction. Therefore, a high degree of trust is required.
However, by choosing the right PEO and global payroll provider, and understanding the benefits they can deliver (while also being aware of the potential pitfalls), any concerns can usually be mitigated, enabling start-ups to enjoy the many advantages of outsourcing HR during the initial stages of an international expansion.
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