PEO VS Contracting

When you are thinking about starting a business in a foreign country, a lot of questions and how to go about the execution process may worry you. Once you have figured out the initial steps, then the only thing you will wish for is the ease of business operations. As a foreign company, what would be the best option while comparing choices for global business expansion?

Ideally, there are 5 ways of international business expansion, which include going through an International Professional Employer Organization, contracting, outsourcing, subsidiary formation, and forming partnerships in India.

In this write-up, we shall compare the pros and cons of the respective styles of PEO vs contracting routes. Is contracting a conducive way for business expansion strategy and how a PEO can be well considered for a business’ remote working strategy? Let’s weigh up both these options.

How do an International Professional Employer Organization and the PEO model work?

A PEO, i.e. a professional employer organization will step in as a legal employer for your remote team. The advantage of the PEO model is that this kind of coordination allows you to focus on your core business, and lets the PEO take care of all the administrative hassles and legal compliances. The PEO service providers in India will handle HR, payroll, insurance, benefits, and risk management.

Understanding the process of contracting

The contractors can work for you independently on a short-term or long-term project. It is a good idea, to begin with contracting but if you have a different goal in mind, it can just be a stepping stone. A contractor will charge you a fixed price for an independent set of tasks for a fixed set of hours. The biggest risk in contracting is you will have little control over maximizing throughput in human resources.

PEO versus contracting

  1. Exclusivity and complications with full-time employment versus flexibility

One of the prime benefits of a PEO service is obtaining full-time employment and the dedication of your remote employees. They will work for you exclusively once the resources are identified by a PEO solutions company. They won’t be allowed to work for another company under the clause.

Contractors on the other hand can legally work for multiple companies at the same time. There are two cons to this kind of flexibility. Your contractor’s attention span will be divided among multiple projects. And if the other projects are paying more, their dedication to your project will perhaps be compromised. The second risk you cannot afford to take is they can work for your competitor company. You can protect your work in a non-disclosure agreement, but you cannot practically stop contractors from working for your rival company.

  1. Productivity and quality assurance

In a PEO setup, you can mold your employees according to your business expectations. You can maximize their deliverables and peak efforts by providing them with the best resources. By using productivity tools and a well-designed approach in a PEO model will help you run a tight ship.

Your PEO resources will comply with your company policies and you can add as many confidentiality clauses as you need. You can also run a background check on your employees and refute the threat of conflict-of-interest clauses kicking in.

However, the working mindset and culture of contractors are like a near-autonomy. The approach a contractor will have is to work independently once the pricing, project schedule, and scope are decided. They won’t go the extra mile to meet your expectations, they will only adhere to the terms of the contract. They will work with their resources, and hours, and will be restricted to your availability. This will not be ideal for maximum productivity and can be risky too.

  1. Cost comparison

The professional employer organization services follow a cost-plus model and the pricing is calculated per employee per month. The service fees are compliant with the wages policy in India and won’t vary with variations in their work scope. A PEO charges in two ways, either through straight costs or percentage costs. The straight costs are $100 to $500 whereas the percentage costs are anywhere from 8%-18%.

In contracting, from a cost perspective, maintaining a team of contractors will turn out to be an expensive affair in the long run. They will charge on an hourly basis for their deliverables. A contractor will charge anywhere from $30 to $60 per hour for hour based contract, and in 4 figures for deliverables-based pricing contracts. If you ask them to make any changes in the work suddenly, for them it means changing the scope of work. That means they will raise their charges accordingly.

  1. Hands-on effort

Probably this is the only factor where contracting wins. Since contractors do not have any overheads, they work independently, you wouldn’t have to monitor them constantly. Whereas, in a PEO setup, you will have to put in time and effort to train your PEO employees. This includes performance assessment, leave management, and productivity.

However, if you are looking for resources for individualistic tasks that would not affect the smooth running of your long business, then contracting is ideal. But if you are thinking about long-term business productivity in India and need a good hiring team by adhering to all legal formalities, then a PEO service provider would work for you.

Choosing PEO over contracting for long-term business productivity

If you think a PEO model will work best for your business, it would be advisable to shift your contract work to a PEO solutions company. It will give you better access to qualitative remote work under an affordable budget.

Remunance will make it easier for you

If you are looking for global PEO service providers in India, then take a look at our PEO/EOR offerings. Remunance’s International PEO service offerings will look after all the non-core activities, leaving you with enough bandwidth time to focus on your core business in India. At Remunance, we help you kickstart your business operations by hiring the right workforce in a matter of a few days. As your PEO partner in India, we will handle all your employee compliances with complete transparency.

We understand how important it is to consider quality work, comparatively affordable rates, and maximal throughput. So while widening your talent pool resources and offloading work, a PEO model is assured to work ideally for you before forming a legal entity.

To get a better understanding of the other alternatives, visit comparisons between PEO and subsidiary formation and PEO against outsourcing.

To reach out to us for additional information, click here.