[Interview] How To Go Global Faster, Easier & More Affordably
Globig CEO Anke Corbin interviewed GPS President Adam Sheffield about international PEOs (Professional Employer Organization) and employers of record. Read on for the interview and advice on going global faster, easier, and more affordably.
Q 1: What is a Global PEO and how are companies using it?
A: A Global PEO is the employer of record that hires your employees for you (co-employment) in any given country you’re expanding into. [Meaning that the employees are employed by the Global PEO, rather than the company.] The Global PEO makes sure that all statutory requirements related to employment law and hiring your people are taken care of. The Global PEO is responsible for best practices and compliance around hiring, managing, and firing internationally, ensuring everything is done properly for you.
Often the objective of hiring a Global PEO is that a company can move into a country quickly, hire people, and be compliant day-one versus doing it yourself, creating an entity and incorporating, which is a significant time requirement. As an example, it can take up to two years for some companies to get a bank account set up in UK, and it’s one of the easier countries to set up business in. Using a Global PEO makes it easy to scale and grow quickly as you expand into new countries,
Q 2: Why do you not have to set up a bank account in the country if you use a Global PEO?
A: Often companies have no need for international bank accounts if they are only paying vendors because many payments can be done through their local banks. Companies set up bank accounts in order to pay their employees and reimburse expenses.There may be reasons to set up an account in each country for certain types of payments, but for the purposes of payroll, it’s no longer required if you use a Global PEO.
Q 3: How does it work with offices? Are these hires still your employees? Do you control the culture, where they work, etc.?
A: It’s a misnomer that you lose control of your employees when you use a Global PEO to hire your team. That’s not the case. The day-to-day activity, culture, office location and anything else related to the employees is all based on the co-employer. The only difference is that the paycheck will have a different name on it. Using a PEO service such as ADP and Trinet is very common in the U.S., especially for small to mid-sized companies since they can band together for better benefits.
Q 4: Why does a Global PEO work well for testing out a new market?
A: Testing a new market can be expensive. It’s really an example of the build or buy mentality. The cost to build is often more expensive and time consuming than buying into an existing program. The costs for testing a market if you do it yourself can include hiring a director of services, and creating an entity. Before you invest the time and effort to create an entity, test a new market to find out if the market works for you. If you did it yourself and things don’t work out as planned, you’re left to wind down the entity which can take months or years. Some companies utilize contractors to test out a market but the contractor relationship is often riskier and can cause compliance issues later on.
Q 5: Why is it easier to wind down when you’re with a Global PEO? Don’t you have the same requirements when hiring employees as when you employ people yourself?
A: With a Global PEO you don’t have an entity footprint. There will still be compliance issues with each employee, such as severance and any other contractual agreements, but you won’t have an entity or the cost, expertise, and time needed to wind it down. It requires significant effort to exit a country if you have a corporation in that country.
Q 6: What is required when exiting a country?
A: When exiting a country you need to consider a couple of things:
1) You’ll need to follow through on all of your employee contracts, perhaps collective bargaining applies depending upon the country and agreements. Employers at times falsely believe they can apply a general severance but government compliance will overrule and severance can be much longer than anticipated.
2) Once the employee challenges are resolved, with a corporation, you have to wind the entity down based on each country’s requirements, which can be significant. We have clients in Germany that have been working over a year to close their entity down.
Q 7: Why is it helpful to consider a Global PEO for M&A’s?
A: Typically when a company acquires or merges with another company, there is a TSA (Transactional Services Agreement) that moves the employees off of the original employer’s payroll systems to the new company. TSA agreements are expensive and usually need to be transitioned off of quickly. Utilizing a Global PEO to employ your new team provides a soft landing for the team. Eventually some companies will then establish their own payroll and HR over time if the company has enough employees to make it worthwhile. We can help them set up the entity and support them as their needs change also.
Q 8: Is a Global PEO only for small companies that lack resources?
A: A lack of resources impacts companies of all sizes. HR teams can be missing the expertise to understand all of the local laws in a given country – there are so many law changes to stay on top of no matter what size the company. It’s often not the core competency and it takes a lot of time away from other things. We’ve heard it said that one international employee can take as much time and effort to manage as hundreds of employees in the home country. Sometimes companies will hire all of these disparate services around the world and don’t have good visibility or reporting on their international business. It’s helpful to find a company such as a Global PEO Services (GPS) to support all of their international groups.
Q 9: Is a Global PEO a new thing?
A: The concept and business of PEO’s is not a new thing but it’s becoming much more popular now with companies going global. Companies following lean business practices and those who want to test a market and be in compliance especially like the idea of using a Global PEO.
Because of law changes around working with contractors, many contractor relationships are not compliant and companies are more favorable to working with global PEOs and a lean expansion model.
Q 10: If you are employed by a company through a PEO, are they officially employed by the company? Example: if you work for ‘Pear’ and they employ via PEO, is the job history, resume information correct? Would ‘Pear’ then say the person didn’t work for the company?
A: A company may or may not track contingent employees. Each corporation may have a different policy. ‘Pear’ may or may not disclose this in recruiting but we haven’t seen it as an issue.
Q 11: Does working through a Global PEO impact longevity at a company, retirement benefits, stocks, or internal company transfers?
A: It really depends upon how a company sees contingent employees. Some might be more gig economy focused where the employees might be more transient. Because there is a war on talent, we see competitive offers globally and companies will do whatever they need to retain the employees and will offer competitive benefits. Using a Global PEO allows companies to find and hire the talent anywhere in the world.
Q 12: How does using a Global PEO impact costs?
A: HR often finds out last minute that they have new employees and they need to figure out how to employ and pay them quickly. Getting them onboarded in weeks instead of months or years can have immediate costs savings and certainly time savings.
If you have to set up an entity and incorporate, register your employees, hire a Director of Offices, onboard new employees in a compliant manner and figure out how to process payroll and provide ongoing HR support to employees in different locations around the world, that process is costly. Which HR departments have the resources to do that in different countries?
We had client who had many employees in Mexico, paying hundreds of people for years. After they did their audit work, they found over 50 employees were getting payroll sent to one bank account and there was money being siphoned off of each payroll to another bank account. This lack of visibility and oversight is also costly. Companies need visibility in each country and trust in their partners.
There may come a time when there are enough employees in a country to financially justify getting off of the Global PEO. We transition growing companies all the time, but for many companies, working with a Global PEO is the best option.
Q 13: Do Global PEO’s provide advice beyond setting up employees for payroll?
A: It’s not uncommon for the companies themselves to have lawyers who will make HR aware of international employment laws, but typically the HR team doesn’t have anyone to provide advice on how HR is typically done in each country. What are the customary norms around hiring and firing in a country? It’s hard for a company to find out. What are cultural challenges? You can’t apply policies across the board or have expectations from your HR that they know everything about every country. It’s hard enough in the US between states and staying on top of the different employment laws. HR teams need guidance to understand norms in each country and a Global PEO will provide advice on what’s best.
Q 14: How does a Global PEO help with risk management?
A: Working with a Global PEO lowers risk because companies will have a smaller footprint in each country and the hiring risk is the responsibility of the Global PEO. Having the right contracts from the very beginning and being compliant significantly lowers risk, too. You may still have some risk as a company but with great partners who are experts, it minimizes your exposure.
Q 15: Is the PEO responsible for GDPR and any legal disagreements that arise? Will they fight any legal challenges?
A: Yes, just like all companies doing business in the EU and holding EU data, a Global PEO will be be GDPR-compliant. For any legal disputes that arise, the Global PEO will work together with the company to resolve the dispute. Companies get into trouble by trying to hire contractors and not being compliant. On paper, hiring a contractor might save some money but most likely you’re not compliant. Working with contractors opens you up for intellectual property challenges and issues with tax laws in that country. If the contractor doesn’t pay taxes properly, that’s where companies get in trouble. The company will owe those back taxes. Contractors know that they could get employee benefits and may take companies to task. You may also be limiting your talent pool because there are advantages of being employed and people know that.
All is good when working with contractors until you have a disagreement and the situation gets raised to the government. Most companies don’t win those disagreements.
Q 16: Do the gig economy employees fall into this scenario of contractor versus employee?
A: Yes, some gig workers might be hired for a project for a set time and then a company likes their services and either contracts get extended or they are just kept on without a contract. It happens all the time and then the gig workers realize that the social benefits are not being paid for. You can either hire them on their own, and that makes sense for some companies, or you can have a Global PEO employ people properly. It’s easy for the scope to change on a project and then they are acting like an employee and often HR is not in the loop for this.
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