The social and economic turmoil of the global pandemic has decelerated the expansion of many businesses, with travel restrictions, changes in consumer behaviour, and increased uncertainty all contributing factors. In the face of such challenges, some businesses have effectively sought to outsource their international expansion – hiring staff in a foreign country via a professional employer organization (PEO) – thus avoiding the need to establish a legal entity in that jurisdiction.
While using a PEO is seen as a favourable option because it involves a much more limited financial and operational commitment to a new market, it is also increasingly seen as a way of getting to know a market before making a deeper investment. In such cases, a business will look to initially enter a market by hiring through a PEO, before registering a legal entity once their commercial operations have grown to warrant it.
The benefits of hiring through a PEO – which can be known as an employer of record (EOR) – are described below, however first a bit more detail is first given about what exactly a PEO is and what services it can offer.
What is a PEO?
A PEO is a company that will hire staff on your behalf in a given jurisdiction, facilitating international expansion into that location by providing a local workforce without the need to establish a local legal entity.
In many cases, this can be done without a representative of the PEO client even visiting the country where they will be developing operations, making it an accessible option to businesses that may have otherwise thought they had not reached a scale that would accommodate international expansion.
The services a PEO can offer will depend on the firm you hire. Because while some PEO firms are focused entirely on that service, others are able to offer a more comprehensive portfolio of business support services. Meanwhile, a PEO with an international presence will be able to advise you on alternative options for your business expansion, or facilitate further similar expansions into other jurisdictions in the future.
A complete PEO service will involve recruiting, hiring, onboarding, firing, offboarding, contract and other document production (ideally in both English and the local language), management of payroll and other statutory benefits, and ongoing advice on all aspects of local labor and employment law.
In being the official employer of your staff, the legal status of the PEO will vary depending on the country where you are hiring. Because while in some cases, the PEO will assume all legal responsibility related to those employees, in other cases some of that responsibility will fall upon the PEO client. Throughout Latin America and the Caribbean, the legal status of a PEO firm and a PEO client can vary considerably, and it is certainly worth taking this into consideration if you are considering different locations for your expansion.
A PEO firm with an international presence will not only be able to advise you on your status as a client in a given jurisdiction, but will also be able to advise you on possible alternative destinations to expand into.
Key benefits of hiring staff through a PEO
Hiring through a well-regarded PEO offers a wide range of benefits, including rapid market entry and exit, trustworthy market insight and guaranteed compliance, externalised remote working, and reduced financial commitment.
Rapid market entry and exit
Hiring through a PEO effectively means hiring staff in the time it takes to find the right candidates. Because once a PEO has been contracted and instructed to seek out the team members you need, the only limit will be the how long it takes to find candidates that meet the profile you have provided.
In the case of manual labor or an entry-level office role, that could be just days. If you are hiring a highly-qualified candidate or someone with specialist knowledge, that could be weeks. But in each case, it will be much faster than the process of establishing a legal entity through which to hire those staff.
On top of that, if you are only looking to develop commercial operations for a short period of time, or if your operational demands change at short notice, departing a market that you entered with PEO support is also much easier. Because rather than a complex and sometimes costly process of liquidating a legal entity, your market departure will be completed as quickly as the statutory notice period for your local staff is over.
Risk mitigation via guaranteed compliance
Each country has its own regulatory requirements and administrative quirks, and may have a number of legislative peculiarities enshrined within labor or employment law. All such aspects of the local regulatory regime can be difficult to understand, and especially if the local official language is different to your own.
An established PEO will have deep knowledge of and well established connections within the local market, as well as a sound understanding of the regulatory regime based on extensive experience working within it. In the context of the global pandemic, this knowledge will be invaluable, with many countries modifying their legislation to better deal with the crisis.
Hiring a reliable PEO means staying abreast of these changes as they emerge, receiving timely consultation regarding upcoming legislative changes, and guaranteeing that you remain fully compliant with all legislation, and therefore in good standing with local authorities.
Externalized remote working
The COVID-19 pandemic has changed working life drastically, and arguably forever. Because while the horror of the pandemic will come to an end, new patterns of working that have emerged to confront it are never going to recede back to what they once were.
Despite the social and economic upheaval, in many cases the pandemic has also forced businesses to accelerate modernization processes, such as digitization and technological adoption. Meanwhile, many businesses have managed to adapt to accommodate remote working, with a lot reporting their intention to continue with it even after the pandemic ends.
Under these circumstances, many businesses have also realised that if their workforce is going to remain remote even when the pandemic is over, there is less need for that workforce to be local. As such, as companies have expanded, or as they have entered a recruitment cycle, the pandemic has switched many onto the savings they can make by taking on workers in
Reduced financial commitment
While hiring staff through a PEO carries fees from the PEO firm, the costs involved with acquiring and maintaining staff this way are far outweighed by the savings related to not establishing a local legal entity.
Because not only can company formation or branch registration take months, depending on the country in which you are incorporating, but it can also be a costly process, not only in terms of paying official administrative fees, but also in terms of gathering and authenticating all necessary documents.
It also means that exit from the market is not costly, in the event of a shift in operational focus, and will effectively be completed by paying up outgoing staff and settling up with the PEO firm.
At a time of great upheaval and uncertainty, it is not difficult to understand how an option that so radically reduces the financial and operational burden associated with hiring new staff overseas appears increasingly popular among our clients at Biz Latin Hub.
About the Author
Craig Dempsey is the co-founder and chief executive officer of Biz Latin Hub Group, an organization dedicated to assisting investors in Latin America and the Caribbean, including through recruitment and payroll outsourcing. Craig holds a degree in mechanical engineering, a master’s degree in project management, and other certifications covering logistics, personal management and government administration. Craig is an Australian military veteran and has been deployed overseas on numerous occasions. He is also a former mining executive with experience in Australia, Canada, Colombia and Peru.