Outgrown Your PEO? Key Indicators That It’s Time to Move On

Outgrown Your PEO? Key Indicators That It’s Time to Move On

Outgrown Your PEO?

Outgrown Your PEO? Key Indicators That It’s Time to Move On

A PEO, or Professional Employer Organization, provides companies with outsourced solutions for their HR, payroll, benefits, and compliance needs. PEOs are commonly used by small to midsized companies as a way to address their back-office needs while they focus their efforts on the core competencies of their business.

Companies use PEOs when expanding internationally as a way to remain compliant and hire employees in the foreign country without having to set up their own legal entity there. PEOs offer a wealth of benefits but their effectiveness does have its limitations.  So, how do you know when you’ve outgrown your PEO solution?

If your company is scaling quickly, here are three key factors that may indicate it is time to leave your PEO.

1. Increased Risk

By hiring employees through a PEO, companies do receive certain legal protections. PEOs assume the liability for maintaining HR and Payroll compliance in each country of operation. Most PEOs also offer some sort of coverage for travel insurance, worker’s compensation, sexual harassment, and discrimination claims. While these protections provide growing companies with additional security early on, the situation changes if the company overstays its welcome. When a company’s workforce grows past a certain point (usually the 50 employee mark), government oversight of that company increases. If it is deemed that the company is electing to extend its stay on the PEO specifically to gain tax advantages, or that their headcount has grown too large to sustain without a legal entity, they may run into significant tax compliance and employment law issues.

Read more about the pros and cons of a PEO here.

2. Cost Inefficiencies

PEOs earn revenue by charging monthly fees to the companies that use their services. These fees tend to be based on the number of employees that the company has employed through the PEO.

For smaller companies, this is a bargain, as they simply need to pay this charge for the employees they have, rather than devoting time and resources to creating their own entity, procuring benefits, and continually carrying out payroll processes. However, once a company’s headcount surpasses a certain point, the once favorable pricing may not be as cost-effective.

With a larger workforce, the fees begin to pile up. In many cases, the annual cost of these fees can exceed the operational expense of setting up own legal entity and directly managing or outsourcing the HR/Payroll needs.

3. Company Culture

A positive company culture is vital to an organization’s growth. Employees are both more productive and more likely to remain with a company when their views and values align with the culture that exists there. When a company hires employees through a PEO, employee may find it difficult to get a sense of that company’s culture.

PEOs can be extremely valuable, but they are rarely meant to serve as long-term solutions. As businesses grow, the one-size-fits-all approach that most PEOs operate on starts to lose its utility.

At Global Upside, we assist companies that have outgrown the PEO structure. With over 20 years of experience working with Clients in over 150 countries, we specialize in providing companies with the support they need to establish their own legal entities anywhere in the world. We understand your objectives in the new country and offer guidance and services to:

  • Create the optimal legal structure that balances risks and cost
  • Hire, manage, and pay employees in compliance with local laws
  • Maintain ongoing compliance and day-to-day management of foreign offices
  • File direct and indirect taxes
  • Consolidate reporting of your global operations