Professional Employment Organisations explained Professional Employment Organisations explained

Professional Employment Organisations explained
31 Jul 2014

An ‘employer of record, Professional Employment Organisation (PEO)’, or ‘portage salariale’ in French is when a local company will employ employees on your behalf.

Advantages

• The local company will be legally liable for the employee (although their contract will ensure that any final costs - for instance in a termination case - are paid by you the client).

• The local employer will be able to offer extra insurances and other benefits - these are difficult for a client that is only registered as an employer in a country (although we tend to warn American clients in particular not to be in a rush to offer USA style benefits like private health coverage, 401k, private pension and life insurance as these are not required in the local labour market).

• If there are disputes involving the employee it is the local firm’s job to manage this - even if you end up paying the bill.

• You may find that the local employment company is ‘tougher’ and less generous than you would be in its treatment of employees. So you, the client save money.

• In the USA in particular clients find that having their staff legally employed by a PEO will save enormously in medical insurance costs which are often very costly for small companies. PEO firms typically employ a lot of employees so the health care costs are spread across many employees and the PEO forms are in a strong position to negotiate good insurance deals. This solution is the one favoured by the ‘social media’ companies and we have a client that employs 400 employees in UK but employs all its staff outside UK using this PEO method, including 27 in USA.

Disadvantages

• The authorities may still say that your company is really an employer and that there is a permanent establishment, but in practice your firm is less liable to this approach.

• The employee may be disappointed at getting a job offer from a company he has never heard of rather than your company. In a tight recruitment market this might matter. But he will be on your company’s emails and have your company’s business card etc.

• This solution will be (on an ongoing basis) the most costly. Tariffs vary from around 10 per cent of salary and social charges in Portugal to 25 per cent in Japan. There are sometimes minimum charges inserted but some firms agree maximum charges.

• It may take your management some time to adjust to the employee not being ‘their’ employee. For instance, a client recently agreed with an employee to pay her in USD which is illegal in the country concerned and brings on a host of problems.

 

By John Tinsley, director, Compandben

An ‘employer of record, Professional Employment Organisation (PEO)’, or ‘portage salariale’ in French is when a local company will employ employees on your behalf.

Advantages

• The local company will be legally liable for the employee (although their contract will ensure that any final costs - for instance in a termination case - are paid by you the client).

• The local employer will be able to offer extra insurances and other benefits - these are difficult for a client that is only registered as an employer in a country (although we tend to warn American clients in particular not to be in a rush to offer USA style benefits like private health coverage, 401k, private pension and life insurance as these are not required in the local labour market).

• If there are disputes involving the employee it is the local firm’s job to manage this - even if you end up paying the bill.

• You may find that the local employment company is ‘tougher’ and less generous than you would be in its treatment of employees. So you, the client save money.

• In the USA in particular clients find that having their staff legally employed by a PEO will save enormously in medical insurance costs which are often very costly for small companies. PEO firms typically employ a lot of employees so the health care costs are spread across many employees and the PEO forms are in a strong position to negotiate good insurance deals. This solution is the one favoured by the ‘social media’ companies and we have a client that employs 400 employees in UK but employs all its staff outside UK using this PEO method, including 27 in USA.

Disadvantages

• The authorities may still say that your company is really an employer and that there is a permanent establishment, but in practice your firm is less liable to this approach.

• The employee may be disappointed at getting a job offer from a company he has never heard of rather than your company. In a tight recruitment market this might matter. But he will be on your company’s emails and have your company’s business card etc.

• This solution will be (on an ongoing basis) the most costly. Tariffs vary from around 10 per cent of salary and social charges in Portugal to 25 per cent in Japan. There are sometimes minimum charges inserted but some firms agree maximum charges.

• It may take your management some time to adjust to the employee not being ‘their’ employee. For instance, a client recently agreed with an employee to pay her in USD which is illegal in the country concerned and brings on a host of problems.

 

By John Tinsley, director, Compandben