Why SMBs Should Use PEOs When Expanding Overseas

  • Professional employer organizations (PEOs) are professional recruitment agencies through which you can outsource your staffing needs.
  • PEOs don’t just act as the regulatory umbrella for your staff members; they can also offer additional benefits to your overseas employees.
  • If you’re looking to expand your business abroad using a lower-cost, lower-risk model, engage the services of a PEO.

As a successful business owner, it’s only a matter of time before you start mapping out a plan for your expansion. As part of your market-entry strategy, you’ll likely be weighing the pros and cons of establishing a branch or subsidiary overseas or incorporating your company in another country. With these options comes the hefty task of understanding and complying with local legal and commercial regulations, and likely, your obligations as an employer.

Thankfully, there’s an easier solution for businesses that are looking to dip their toes in a new market without overwhelming themselves with major investments and a raft of foreign compliance requirements. If you’re looking to expand overseas using a lower-cost, lower-risk business model, engage with a professional employer organization (PEO).

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Expansion demands

Depending on the country you’re targeting, there’ll be a number of different legal entities (business structures) for you to choose from when expanding. Many of these will likely come with minimum capital investment requirements, along with legal, accounting and other obligations that your headquarters and senior staff overseas will need to keep on top of.

Businesses can be left quite vulnerable during expansion as they’re heavily reliant on local experts to fully understand and meet their obligations in the new country. On top of this, it’s a crucial period for establishing a client base and relevant industry contacts as well as for hiring the right people to support and nurture your investment.

This process is costly, and it can be even more expensive if wrong steps are taken or elements of local law are overlooked.

But businesses and their fledgling expansions have another option: working with companies known as professional employer organizations (PEOs) that can take on some of the burden and drastically lower the risk your company takes when entering a new market.

Engage with a PEO

PEOs are professional recruitment agencies through which you can outsource your employment needs. Through a “co-employment model,” you can enter a new market before investing in a formal commercial footprint in the country such as a branch or incorporated company.

PEOs can support your business with the following services:

  • Recruitment
  • Onboarding
  • Paying staff wages and managing payroll
  • Making contributions under employment tax laws
  • Ensuring an agreed-upon level of employee safety
  • Providing staff compensation coverage
  • Complying with local employment law

This “co-employment model” means that a PEO will formally be the staff member’s “employer of record.” As an employer of record, the PEO assumes all employer responsibility for the staff member, while they undertake work for the hiring company. Your overseas team members will carry out their roles with your company while being brought into the structural fold of the PEO.

Lower costs and risks of overseas expansion

Why invest in a large-scale expansion in your new market – such as forming a branch or subsidiary – when you could start smaller and lower your risk profile?

Though local legislation can differ between countries, expanding businesses generally have a limited set of options for configuring their overseas operations. Available business structures (also known as legal entities) can include:

  • Limited liability companies
  • Foreign branch offices
  • Subsidiaries
  • Partnerships
  • Public corporations

Though establishing a formal local entity such as those mentioned above will add immediate weight to your presence in a new market, they can be a costly move for companies, especially if they don’t succeed.

Build your market entry strategy around a micro-level investment by using a PEO’s services. This is especially helpful for first-time expansions, and budget-sensitive SMEs. Having one or two senior sales representatives or other executives on the ground means you can still achieve fundamental expansion activities at a lower price. If your company chooses to withdraw from the market, the market exit process is quicker and the potential sunken costs of the venture are considerably lower.

Look after your overseas employees

PEOs don’t just act as the regulatory umbrella for your staff members; they can offer additional benefits to your overseas employees too.

Your company may not be able to extend the same kinds of benefits to staff working outside the country where your headquarters is based. Likewise, your company’s policies on human resources, health and safety, and risk management may not be easily transferable to a new country that potentially has very different local regulations on these matters.

PEOs can offer greater overall coverage for your overseas employee, adding significant value to a staff member’s employment experience. This is especially true for smaller companies expanding abroad; a PEO’s “big company benefits” can sweeten the deal for an employee or team working away from the company’s headquarters.

Having local employment support means your staff can access helpful guidance and regular engagement with someone who is familiar with the surrounding area. Outside of learning about the specifics of their job with you, PEOs can be a point of contact for your staff members to get information about different environmental aspects of their overseas role.

PEOs can facilitate training opportunities for your staff that you may not otherwise have been able to offer. With the co-employment model, your staff can tap into such plans offered by the professional employment company.

A PEO may offer employee benefits such as health or dental insurance, which is enticing for prospective candidates. On top of that, their internal or corporate policies are compliant with local legislation. You can, therefore, rest assured that your employee is adequately supported and protected by the PEO.

Reduce turnover

Most business expansions start small and it can be an isolating experience for your first overseas team member. Once you’ve found the right person for the job, you want to implement the right strategy to retain them. Expanding your business is a critical procedure, and you need to find and retain the right people to support this process.

PEOs can often offer a support network that the hiring company can’t, due to their established presence in the country.

This is an especially important advantage of partnering with a PEO. If your chosen country has a shortage in the skillset you need, you won’t be able to easily or regularly find replacements for that position.

Consider the value a professional employer will add here. The organization’s larger footprint and employee numbers in the country offers greater networking opportunities and social support for your staff member or team, ensuring your employees are engaged and supported, and reducing the risk of turnover during your expansion.

PEOs are a lifeline for expanding businesses

Expanding into a new country is a critical time for businesses. Companies have many things to contend with during this time; they must understand and comply with new and unfamiliar commercial, tax, employment and sector-specific regulations.

This exposes the company to varying levels of risk. If your business doesn’t already have local experts on hand to advise you on best practice and next steps, you could quickly find yourself caught up in complications with local authorities over non-compliance.

Reduce the burden and stress on your business venture and engage with an experienced PEO. Not only can a PEO provide ongoing employment and payroll services, but their structure is an asset to retaining your talent and keep your expansion operations flowing smoothly.

Protect your business and support your overseas footprint by working with a PEO that can carry out the necessary activities to further your success in a new market.