When you are contemplating working with a Professional Employer Organizatio (PEO), you may be considering a national PEO (sometimes called a ‘local PEO’), instead of a global or international PEO.
Here we look at the core benefits of engaging a national PEO.
What Is National PEO?
National PEO is an HR solution for businesses that could benefit from outsourcing some of their core employment functions.
Traditionally, businesses have themselves carried out the core functions relating to employment. This means:
- recruiting staff;
- processing payroll;
- withholding employment taxes (i.e., income and payroll taxes);
- submitting taxes to the relevant authorities;
- distributing employee benefits and managing benefit contributions;
- renewing contracts and dismissing staff.
Since the 19th century (beginning with recruitment), businesses have begun outsourcing some of these tasks to third party firms.
Starting in the 1960s, businesses began to outsource the entire compliance function of employers, through labor leasing, and then ‘Employer of Record’ solutions.
Read more about the history of outsourcing and PEO solutions at What Is an Employer of Record and How Does It Work?
A national PEO is a company that provides a full suite of employment solutions, usually including employer of record, payroll and HR compliance solutions.
A Global PEO offers these services internationally (and often adds additional solutions such as recruitment and company incorporation).
There are also regional PEOs, such as Africa PEOs and Europe PEOs that focus on PEO solutions in a particular region. For example, a Europe PEO has an expert understanding of how data protections laws apply for employment across Europe.
To find our more about PEO solutions in general check out What Are PEO Services?
Below we examine some of the benefits of engaging a national PEO.
How Does a National PEO Work?
A national PEO may follow a slightly different process in each country that it operates in. For example, in the US, it is common for national PEOs to operate through a co-employment model which means that both the PEO company and the client company may be liable for some aspects of the employer’s role. However, generally speaking, when a client company engages a national PEO, the process will proceed as follows:
- Strategic discussion
- The national PEO and the client company will discuss the best solution for the client company. In many cases, this will be an employer of record or co-employment solution.
- In some cases, payroll outsourcing might be a more appropriate solution.
- Engagement contract
- The national PEO and the client company will agree on the terms of engagement, including payment (usually on a per employee basis), and the responsibilities that the national PEO will be assuming.
- Employee onboarding
- Employees will receive employment contracts compliant with the tax and labor laws in the region in question.
- Necessary personal and tax information will be sought from employees for purposes of payroll, tax and employment compliance.
- Payroll processing
- Payroll will be processed by the national PEO on a regular basis in line with employee contracts.
- Necessary deductions for income tax withholding, payroll tax and employee benefits will be made.
- Ongoing HR management
- The national PEO provides ongoing HR management for the client company. This includes dealing with any employment disputes as they arise, as well as contract renewals and dismissals.
National PEO Benefit 1: Knowledge of Local Laws
One of the most important roles of a national PEO is to ensure compliance with the local regulatory regime.
A national PEO can ensure that businesses which expand across state or provincial lines are fully compliant with local labor and employment laws. Compliance failures jeopardize a business’s reputation as well as exposing them to back-taxes, penalties, unpaid social contributions and (where this results in serious debts) potential insolvency.
Even within a given city, state, or province, employment and tax laws can regularly change making it difficult for businesses to keep up.
Local PEOs often have strong relationships with local regulatory authorities, which often allows them to anticipate changes and ensure client businesses are aware of what is on the horizon. By working with a local PEO, you can have a team that is specifically dedicated to keeping up with changes in regulations and how they impact a client business.
Some of the local compliance requirements that a national PEO will be on top of include:
- Provisions to include in employment contracts;
- Sick leave;
- Holiday pay;
- Minimum wage;
- Bonuses;
- Maternity/paternity leave;
- Social security systems;
- Taxes;
- Termination and severance procedures.
National PEO Benefit 2: Awareness and Expertise with Local Markets
One important element of a national PEO’s expertise besides compliance, is local labor market knowledge.
A national PEO will be aware of competitive salaries/wages in the target area, and competitive benefits packages. For example, a 13th or 14th month pay is very common in some areas, even though it is usually not mandated by law. These wages and benefits can be added into contracts for workers in that area.
National PEO Benefit 3: Trouble-shooting
Having a national PEO with local offices can provide greater convenience and accessibility when any problem arises in relation to employee payroll and compliance.
For example, when operating across multiple states in the US, a national PEO will have staff located within the state in question to deal with issues as they arise. This is a far better option than having to wait for a representative from a national firm to fly out every time an issue arises.
National PEO Benefit 4: National Recruitment Reach
Where a national PEO provides talent acquisition, they are likely to be able to tap into potential talent across the country in question.
This can be more difficult for a client company to carry out directly as they are unlikely to have ongoing relationships with local recruiters.
National PEO Benefit 5: Cost Savings
National PEOs are employee payroll and compliance specialists. That specialisation means that they can carry out their tasks more efficiently, and at a comparative advantage to firms carrying out the task themselves.
In addition, national PEOs are often able to provide better benefit packages, at a better price, than regular employers. This is because, with a greater number of employees, they can access benefits packages unavailable directly to small businesses.
Frequently asked questions
They are the same thing. A national or local PEO provides PEO services within a strict geographical area.
These two types of employment solution offer a similar service: They can both act as the employer of record for the workforce of client companies.
In the UK, and some countries in Europe, ‘umbrella company‘ is the more common term. In the United States, the term ‘national PEO’ is more common.
A national PEO operates only within a certain country. A Global PEO operates across multiple countries.
Note, even though a Global PEO operates internationally, it still has separate local entities located in each country in which it operates. It is this local entity that becomes the ‘Employer of Record’ for a client company’s workforce. In light of this, it might be said that a Global PEO operates like a collection of national PEOs.
The distinction between a national PEO and a Global PEO is discussed in more detail at What is a PEO & How Does It Work?
Choosing a National PEO
Choosing a national PEO can make sense for a business that does not intend expanding beyond a limited jurisdiction. Companies with growth ambitions will often benefit from a Global PEO, rather than a national PEO. This is because a Global PEO can act as one point of contact across all international locations, saving the business from needing to deal with multiple providers.
To find out more about the benefits of Global PEO solutions, get in touch with Horizons.
