PEO Vs Legal Entity

PEO Vs Legal Entity

The post-pandemic’s ‘new normal’ has popularized remote working. Research experts suggest employees would happily choose remote work. They would happily work remotely if given a choice between remote work and working from the office. So when you are thinking of tapping into the talent pool in India for your global business expansion strategy. Let’s walk through this article to gather an overview of the best-suited option for your international market expansion while entering India. Whether it would be engaging with a professional employer organization or forming a legal entity.

This five-minute read will help you evaluate the best alternative concerning the time to start your business in India. Accompanied by the ease of operations and cost aspects while comparing the PEO and legal entity route.

What is a PEO (professional employment organization)?

A PEO (professional employment organization) will step in as the legal employer for your remote employees in India. Your employees will be under the payroll of the PEO and the direct control of your company. The PEO agency will efficiently take care of non-core operations like administrative headaches, HR management, and payroll. This will allow your company to focus on the core business.

What is a legal entity?

A legal entity, also known as a subsidiary company can be established in two ways. Either as  a WOS (wholly-owned subsidiary with 100% investment) or a partially owned subsidiary (the parent company needs to own at least 51% stock ownership). The parent/holding company exercises control over the subsidiary company.

Undoubtedly, setting up a legal entity has become more convenient today compared to traditional times. But it is best you should procrastinate on forming one and engage with a PEO organization first till you can do without a subsidiary for a considerable time. Once you are content with the response and potential, you can decide on establishing your Indian office and outreaching your brand. If you wish to tap into the Indian market in the future, having a legal entity here is the best option eventually.

Drawing a comparison between a PEO and a legal entity will depend on your business goals, objectives, and unique circumstances. To know more about forming a subsidiary company in India, visit https://www.remunance.com/blog/five-things-to-know-before-you-form-a-subsidiary-company-in-india/. To assess the two methods of business growth, we evaluate them concerning time, ease of operations, and costs.

PEO vs legal entity- Time, ease of operations, and cost

  1. Time to start business operations

A PEO company can offer you its services within a few weeks without spending additional time and resources. Once you have identified your business resources, a PEO service can kickstart your business operations in 24 hours. Whereas setting up a business entity in India will take around 2-4 months. This is because of all the decisions will need approval from your parent company.

Global PEOs offer the best turnaround times. As your legal employer for India, Remunance will ensure your business becomes operational speedily. We have a better understanding of the Indian pulse, market, and fluctuating trends. We also take care of your employee compliance, employment tax, and employee benefits. 

  1. Ease of operations

Engaging with a PEO means handing over all your compliance concerns to them. They will hire resources for you and manage complete end-to-end HR services for onboarding employees in India. They will scout talent, set up their bank accounts, process payrolls, handle taxation, disburse employee benefits, and administer insurance.

With the creation of a legal entity in India, you will be liable to pay taxes for all transactions and operations. You will need a dedicated accounting team to handle your employee compliance, taxation, and accounting. This may become an inconvenient task.

At Remunance, we achieve flawless local compliance with the use of software processes and adhere to timelines. We make spotless configurations with our experience in dealing with government portals. We offer a smart PEO model customized for your operational requirements. We also offer extended services such as recruitment, IT infrastructure support, and logistical support to your team.

  1. Cost aspects

A PEO will charge you per employee per month. The net costs of a PEO are economical compared to a legal entity. There are two ways in which PEO cost differs. They include straight costs and percentage costs. The straight costs will range from somewhere around $100 to $500 whereas percentage costs of the employee salary range anywhere between 8% -18%. There are no overheads of resource management and business compliance as they are handled by the PEO.

Whereas forming a legal entity along with added required registrations will cost you anywhere from $2500 (approximately 1,94,425 rupees) to $5000 (3,88,851 rupees) approximately. Accompanied by business operation cost, legal and taxation compliances.

Your ideal pathway to global business expansion- PEO or a legal entity?

In a nutshell, a foreign startup or SME can greatly benefit from going through the PEO route in the initial stages of business expansion. It would be ideal to test the waters before getting into the hassles of establishing a legal entity in India.

You can consider setting up a legal entity when you feel your business is growing rapidly. Accompanied with a large employee headcount in the new territory. To justify the investment of money and resources. As a foreign SME, you may like to take advantage of the tax holidays, and benefits, and realize your business has outgrown the PEO model. This is mainly because setting up a legal entity is a time-consuming and tedious process. 

In most cases, companies prefer to enter a new territory via the PEO route and then set up a legal entity at a later stage if all goes well.

Remunance, your co-partner for both services

Remunance has a mission to inspire foreign companies to build successful businesses in India. Remunance has pioneered its way into offering a unique basket of PEO services and subsidiary formation to overseas businesses. We offer end-to-end services like HR, insurance, benefits, payroll, and risk management. Unlike any other PEO agency, we go one step further to provide extended services. The services include leaving management, recruiting, employee training, office infrastructure, and HR support. Our founder, Mr. Rajendra Vaidya has done extensive research, identified loopholes, and devised a business model. This business model works in the best interest of a compliant PEO business for overseas companies only.

So, whether you’re a foreign startup or SME planning business expansion to India, Remunance’s PEO service is exactly what your business needs. Remunance is regarded as one of the most reputed Indian PEOs. The team of experts at Remunance is also very well equipped to handhold you in  setting up a legal entity in India, We ensure seamless transfer of power and resources to the new local entity once it becomes need of the business.