When you’re expanding your business globally there are countless decisions you must make to ensure it runs successfully. One of those is whether to use a PEO or set up a legal entity to facilitate your expansion into a foreign country. Read on as we run through which is best for your business, taking into account cost, time to market and compliance.
Why use a PEO?
There are many reasons to choose a PEO over a legal entity, some of which we will explore below. However, if you want to read more about the benefits of a PEO, check out our previous blog.
Time To Market
Once you hit go on your global expansion you want to see progress and start establishing a presence in your chosen country as soon as possible. This is where a PEO comes into its own. Setting up a legal entity can take up to 12 months with countless hurdles to overcome along the way. As such, establishing a legal entity can really put the brakes on your global expansion and lead to you losing candidates, clients and momentum during this time. Using a PEO however is a much quicker route to market. A PEO has an established entity in your chosen country and can therefore manage the employment of your international hires getting you set up in a new market in a matter of days rather than months. As such a PEO can help you gain momentum on your international expansion and accelerate your time to market.
Cost
It goes without saying that global expansion, regardless of whether you use a PEO or legal entity, comes with additional expenditure. However, a PEO can greatly reduce your costs as opposed to setting up a legal entity. Establishing a legal entity takes up ample resources and staff, both of which cause extra costs. Likewise, red tape, compliance issues and other hurdles are inevitable when setting up a legal entity hence resulting in additional costs. However, a PEO operates with best practices and extensive experience, helping to cut costs on your behalf whilst also improving your processes.
Compliance
Last but certainly not least, a PEO can guarantee compliance during your business expansion. Setting up a legal entity on the other hand, is laden with compliance risks which can greatly hinder your route to market. Employment laws vary greatly from country to country and can change at little notice, leaving your team to catch up and adapt business practices quickly, a process that can cause non-compliance. A PEO however, has vast knowledge of employment regulations globally and can advise on a range of employment legislation, including:
- Written employment contracts
- Sick pay
- Parental leave
- Holiday entitlement
- Hiring and firing practices
- Overtime regulations
- Payroll and benefits
- Visa applications
As such, a PEO is your best possible solution for ensuring compliance during the set up and continued operations of your business in a new region.
Why set up a legal entity?
While a PEO can save you time, money and ensure compliance with your global expansion, there are some instances when a legal entity may be preferable.
Rapid business growth
A PEO can help you recruit one employee or a whole team globally. However, as your business, and your international team grows at speed it may become more cost-effective and logistically beneficial to set up a legal entity and bring the management of employees in house. This is a sign you have outgrown the PEO model and may benefit from creating a legal entity.
Tax and Benefits
A legal entity can allow you to benefit from tax rebates, business grants and other benefits; however, it is worth weighing these up against the employee benefits a PEO can provide. Likewise, money you receive in rebates or grants may be offset by the costly setup of a foreign subsidiary so be sure to weigh up all costs and savings when deciding between a PEO and a legal entity.
Think you need a PEO? Using a PEO is a cost-effective, quick and efficient route to market that can save you the compliance risks and lengthy set up that comes with a legal entity. To find out more about how Leap29 can be the PEO and recruitment partner you can trust contact our team at [email protected].
