International PEO vs. Direct Hire

Advantages and Disadvantages of an
International PEO vs Direct Hire

Advantages
International PEO
  • Speed to hire – typically requires between 4-6 weeks
  • The PEO is responsible for employment, onboarding, and compliance
  • Client’s manage employee/s while PEO takes over the administrative burden of payroll, benefits, or other human resource matters
  • No legal presence in the country is required (Representative Office, Branch or Subsidiary)
  • PEO helps with tax and compliance requirements
  • The PEO manages the employee termination process
Direct Hire
  • The employee has an immediate association with the Company and can participate in all Company benefits such as stock options
  • The employee can be directly managed by the Company
  • There are many commercial benefits to having a legal presence and an employee representing the Company in-country
  • Time to incorporate and register a legal entity is typically a lengthy process and in some jurisdiction it can even be months
Disadvantages
International PEO
  • In some case, PEOs can get very expensive with setup costs, monthly fees (charged per employee) and deposit
  • Geared towards short term assignments but creates challenges when trying to scale
  • The employee may not connect with the Company on more than a superficial level given not being hired directly by the Company
  • Limited in benefits offerings
  • A Company with 5+ employees in one country could be subject to permanent establishment/tax nexus exposure if they do not establish a legal entity. The Government can assess fines, penalties, interest and potentially force them to cease operations
Direct Hire
  • The Company is committed to an established legal presence in the country including following compliance requirements
  • The Company is responsible to know local country labor laws and manage employees accordingly
  • The time to set up may lead to losing qualified candidates and other opportunities
  • Must implement payroll services for local employees
  • Required to file and pay income taxes