A Europe Professional Employer Organization (‘Europe PEO’) is a specialist firm that supports international and Europe-wide hiring and expansion. Here we explain how Europe PEO and Employer of Record solutions work, and some of the benefits of Europe PEO for hiring in Europe.
Key Takeaways
1. Constant economic growth, an abundance of educated professionals, and a commercially-friendly regulatory environment, make Europe a popular destination for international hiring and expansion.
2. A ‘Europe PEO’, or ‘Europe Employer of Record’ solution has a range of benefits for hiring in Europe.
3. A Europe PEO takes into account the unique regulatory environment in Europe, including the General Data Protection Regulation (GDPR) and comprehensive social security schemes.
4. The precise services offered by a Europe PEO vary depending on country. For example, a PEO in Germany tailors its contracts and services to German law, and a UK PEO does the same thing for the United Kingdom.
Why Hire in and Expand into Europe?
The European Union, when taken as a bloc, has been judged either the world’s largest economy (when considering size and GDP per capita), the second largest (when considering GDP alone) or the third largest (when considering ‘Purchasing Power Parity’), depending on the measure employed.
And this doesn’t take into account those significant European economies that are not part of the EU (such as Norway, Switzerland and the post-Brexit United Kingdom).
The latest data suggests that the European growth trend will only accelerate.
Besides the economic strength of the region, other advantages of hiring in Europe include:
- A highly educated potential workforce, usually fluent in multiple languages, including English;
- Europe-wide supply chains. Within the European Single Market (the 27 EU member states, plus Iceland, Liechtenstein, Norway, Switzerland, and Northern Ireland), there is almost free movement of goods, making cross-border business straightforward;
- Free movement of labor. Generally speaking, EU workers can move and work anywhere else within the EU. This means that, wherever you seek to base your European operations, you have access to a much larger pool of talent than you might otherwise have.
What Is a Europe PEO?
A Professional Employer Organization (PEO) is an organization that hires and manages the payroll of employees on behalf of client companies. A PEO also often provides a range of related services, such as recruitment, contract drafting, strategy and HR advice.
An ‘Employer of Record’ solution is often a central part of a PEO’s services. This means that the PEO is the official, legal, employer of workers from the perspective of the tax authorities (and sometimes labor regulators).
Sometimes the terms ‘Europe PEO’ and ‘Europe Employer of Record’ are simply used interchangeably.
Most Europe PEOs are also Global PEOs. This means that they operate internationally, as well as across Europe. A global PEO can manage staff both inside and outside Europe.
How Does a Europe PEO Differ from PEOs Elsewhere?
While the central elements of a Europe PEO service are the same as PEO services in other parts of the world, hiring in Europe does mean some differences from hiring elsewhere:
- Europe-Wide Regulation
- Most of Europe is in the European Union. This means being covered by a range of rules which apply courtesy of European law. For example, the General Data Protection Regulation (GDPR) applies to employee data across the EU.
- Porous borders
- Labor in Europe is highly mobile. It is common for employees to live in one country (such as Germany), and work in another (such as the Netherlands).
- This adds complexity to employment as two systems of tax and employment regulation may need to be take into account.
- High levels of labor regulation
- Relative to North America, the UK and Australasia, continental Europe has a highly regulated labor market: Employees usually have guaranteed annual vacation leave of at least four weeks, as well as generous health insurance and pension schemes. Many of these costs are borne by the employer.
What Are the Benefits of a Europe PEO?
Why should a business use a Europe PEO? Could it not just open one entity, and then employ staff across the EU and Europe? In short, the answer is no.
While the European Union allows citizens of one country to move and work anywhere else within the union, it is not generally permitted for a company in one country to directly employ staff in another country.
Engaging a Europe PEO means avoiding the need to set up local European legal entities to employ staff in the country that they work in. In addition, benefits of a Europe PEO include:
- Multi-country expansion
- If an enterprise seeks to operate in several European locations, it would ordinarily need to take the costly and time consuming step of setting up a legal entity in each of those countries.
- With a Europe PEO, professionals can be compliantly hired in any location in Europe.
- Cost and time savings
- Even setting up a legal entity in one European country can be time-consuming and expensive. For example, to set up the most common form of corporate legal entity in Germany, the ‘GmbH‘ (Gesellschaft mit beschränkter Haftung) requires:
- 25,000 Euros in initial share capital
- drafting and notarization of articles of association/founding documents
- registration on the commercial register
- registration with the trade office
- registration with the local chamber of commerce.
- By contrast, a Europe Employer of Record and PEO can have you up-and-running, without a separate legal entity, in as little as 48 hours.
- Full compliance
- A Europe PEO engages all employees on locally-compliant employment contracts, ensures that essential taxes are withheld, and pays all necessary social contributions.
- Attempting to manage HR compliance across Europe yourself runs the risk of non-compliance and substantial penalties. For example, a Europe PEO can ensure that staff are not misclassified as contractors rather than employees.
- Payroll and payment simplicity
- With a European PEO, your company pays one monthly bill for all staff, in one currency.
- Managing payroll within Europe yourself could involve paying in multiple fluctuating currencies (for example the Euro, the UK Pound Sterling, the Swiss Franc and the Swedish Krona).
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How Does a Europe PEO Work?
Where a business wishes to engage a Europe PEO, the process usually proceeds as follows:
1. Strategic Discussion of Hiring in Europe
The Europe PEO and the client company will discuss the best options for hiring staff or expanding into Europe. The Europe PEO may be able to advise on the best countries or regions within Europe for hiring staff.
2. Sign Engagement Contract
An engagement contract between the client company and Europe PEO will set out the exact obligations of each party and the price of services.
3. Employee recruitment
Where necessary, the Europe PEO will get to recruit local staff through traditional channels and extensive local networks. Where a client company already has staff in mind, this step might be skipped.
4. Employee onboarding
New employees are provided with compliant employment contracts and set up with essential payroll information.
5. Ongoing Payroll Processing
The Europe PEO processes payroll for all employees in accordance with local payment schedules. Essential taxes and social contributions are withheld and submitted to the relevant authorities.
6. Ongoing HR and Compliance Management
The Europe PEO deals with ongoing issues such as employment and payroll disputes.
7. Contract Renewal or Termination
Where appropriate, the Europe PEO will ensure timely contract renewal and terminate any contracts in accordance with employment law.
8. Transition to Entity
Where a company wishes to transition from a Europe Employer of Record arrangement to a limited liability local entity (such as a UK Limited Company, a German GmbH, or a French Société A Responsabilité Limitée), a Europe Employer of Record and PEO can help.
Sometimes, this will be a result of the expanding operations of the client company (which makes a PEO more appropriate). On other occasions, this will be because a transition is legally required (more on this below).
What Does the GDPR Mean for Hiring in Europe?
One major challenge for any business expanding into or hiring in Europe is managing compliance with the General Data Protection Regulation (GDPR). The GDPR is an EU-wide law which requires that organizations have procedures in place for managing personal information — including the personal information of employees. This includes having ‘privacy by design’ data protection mechanisms in place, as well as affording employees rights to their own personal data (such as the right to correct inaccurate information).
You can read more about the GDPR at What is the General Data Protection Regulation (GDPR) and its Impact on Global Expansion?
By hiring a Europe Employer of Record or PEO, you can outsource this burdensome compliance task as it is the PEO, not the client company, that holds and controls this personal information.
Do PEO Services in Europe Differ by Country?
Yes. PEO services are slightly different in each country in Europe as the laws and regulations surrounding ‘Employer of Record’ and ‘Contract Staffing‘ in each location vary.
For example, in Germany, most PEOs operate on an ‘Employee Leasing’ model (Arbeitnehmerüberlassung – AÜG), which means a PEO can only hire an employee for 18 consecutive months. At that point the worker must be transferred to a local entity (such as a GmbH) or stood down for at least three months.
In the United Kingdom, by contrast, most Europe PEOs utilize an ‘umbrella company‘ arrangement for project-based staffing. Unlike ‘Employer of Record’ solutions on the continent, umbrella companies allow for employees to claim additional expenses (such as assignment-related travel). As ‘deemed employers’, umbrella companies also have an obligation to examine and make declarations on the correct classification of an employee.
In Spain, a PEO may need to consider the application of the remote working law to any remote staff (including remote work allowances and and remote work policy).
Can a Europe PEO Help European Companies Hire Overseas?
Yes. Usually Europe PEOs are also global PEOs, which mean they can support European companies in hiring and expansion into other continents.
Through a global PEO solution, a global PEO can generally hire and employ all of an enterprise’s staff, no matter where they are located.
A reputable global PEO will be able to ensure that the transfer of any personal data from an EU country to another country is GDPR-compliant .
Engaging a Europe PEO
Europe is an increasingly attractive country for hiring skilled professionals and global expansion.
Engaging a Europe PEO is usually the most cost-effective, and fastest mechanism for hiring or setting up shop in Europe. It also ensures that all hiring is GDPR-compliant, and meets labor law and tax requirements within Europe.
To find our more about Europe Employer of Record and PEO solutions contact Horizons today.
