Professional Employment Organization (PEO)

Why PEOs are Important in a Global Payroll Strategy

The COVID-19 pandemic has brought virtual teams and remote working at the front and center of almost every outward looking organization’s employment strategy, especially in the case of startups and SMEs planning international market expansion. In their endeavor of spreading their geographical reach to newer territories, it can become increasingly overwhelming for companies to manage the complexities of employment laws, salaries, union negotiations, employee benefits, taxes, and other necessary compliances across different regions all by themselves. This is because every nation has its own set of unique labor laws and regulations which need to be complied with and failure to do so could potentially lead to heavy penalties which can be a significant setback for a growing company.

Adding a Professional Employment Organization (PEO) to the global mix can significantly help foreign companies in consolidating and maintaining a Global Payroll Strategy. A PEO essentially provides value added services such as recruiting, local tax and compliance, payroll processing, benefits management, salary requirements, work permits, etc. and takes over all non-core activities thereby taking over the burden of managing these aspects from the foreign company. Moreover, while the remote teams would be hired on the PEO’s payroll, the foreign company would still maintain control over the employees’ deliverables and daily activities. In short, hiring a PEO would give a foreign company direct control over a dedicated remote workforce without the hassles of managing local compliances in the various regions in which the workforce is physically located.

For a global payroll strategy to be successful, it needs two main components – timely computation and payments as well as 100% local compliance. While the former is relatively easier to manage, compliance management becomes a complex task because different countries have different rules and regulations which exposes payroll professionals to higher risks because of the increasing regulatory complexities being laid out by different governments across the world. 

For instance, some countries in the European Union require salaried employees to keep track of their time spent at work. If these salaried employees work more than the required hours, they may be entitled to overtime pay and non compliance to these local labor and payroll laws can expose the company to heavy penalties.

Here are some examples of country-specific fines and penalties:

  • Hong Kong: Any company that has not set up a Mandatory Provident Fund (MPF) plan may be liable for criminal prosecution with possible fines of up to HK$100,000 and six months imprisonment; persistent offenders risk a penalty of HK$200,000 and one year in prison.
  • Australia: Misclassifying workers as independent contractors in circumstances where they are employees could make a company liable for a penalty of up to A$54,000 and A$10,800 per occasion for any individual involved in the infringement such as a director or relevant manager.
  • Mexico: Companies must provide and record skills and competency training for employees. Failure to do so will result in significant fines.

Running a business across different geographies can be a challenging task especially for a startup or an SME which is on a rapid growth path. In most cases, companies struggle to find a single vendor for all their global payroll requirements and end up hiring multiple vendors across different geographies for their different needs. As companies grow in size and enter newer markets, it becomes increasingly tedious and cumbersome to manage multiple vendors across multiple time zones. Moreover, while these vendors would be very efficient in delivering the specific results in terms of filing returns or processing payroll, they don’t assume any of the risks associated with non-compliance, if at all any. 

Consolidating all these different vendors via a PEO not only takes away the stress of managing these non-core activities and related compliances, it also gives the company more bandwidth to focus on business growth. Moreover, the PEO agency would assume the majority of the compliance related risks and bear this burden on behalf of the foreign company which can be a real game changer for rapidly growing startups and SMEs. 

In a nutshell, PEOs help companies successfully navigate the complexities of global payroll by providing the following services:

  • Payroll compliance: Fully managing payroll across various jurisdictions. This typically includes producing payslips, submission of statutory filings and payments, and generating year-end reports
  • Payroll funding: End-to-end delivery of global payroll funding services across multiple geographies
  • Expatriate payroll: Access to support such as hypothetical tax estimation and withholding, tax equalization, shadow payroll, tax planning, etc
  • Global business support: Additional services that go hand in hand with payroll and help companies leverage other solutions for global business expansion
  • Ongoing compliance: Access to competent research teams that keep track of regulatory changes as they occur so that companies can mitigate any risks

By bringing a PEO on board, companies can hire and onboard employees quickly with 100% legally compliant employment contracts, gain access to comprehensive employee health insurance benefits and ensure that payroll is timely and accurate irrespective of the geographical location of the employee. 

So, if you’re a startup or SME looking to expand your business to India, Remunance, regarded as one of the best Indian PEOs, has all the right solutions to help you consolidate and efficiently manage your global payroll strategy. Unlike a regular PEO, Remunance not only takes care of cost-effective services for HR, payroll, insurance, benefits, and risk management, it goes one step further to provide extended services like leave management, recruiting, employee training, office infrastructure, and HR support. The competent team of experts at Remunance essentially take overall administrative activities so that clients can focus their attention on core business activities instead of worrying about compliances, regulations or payroll management!