There are a lot of PEOs companies out there with different offers, prices and competencies. They range from complete bespoke platforms where you can streamline and automate your payroll to companies that offer their services in 130+ countries. But, no company fits them all. You have to make a list of your criteria and then match them with PEOs. Depending if you are a startup CEO or a financial controller at a large enterprise you will have different needs and expectations from a PEO. We made a subjective list of 8 aspects which you should take into account when choosing a PEO.
Direct or Indirect - that’s the question 🏙
Some PEO companies which we will call indirect PEOs don’t have their own entities in every country and use accounting or outsourcing companies to actually employ your employee. That adds another layer of companies between you and the worker. As a result, money flows from you to the PEO, then from PEO to their local partner, and then finally to your employee.
Direct PEO will have their own companies in various countries which gives them greater control of the experience of each employee in each country (same processes, same tools, same requirements etc.) This will guarantee you that every employee has an equal experience during onboarding or everyday work situations.
Working with direct PEO has also an advantage of eliminating the third party, fewer people involved in the process and lowering the costs.
Check the pricing carefully 🔬
Most of the PEO companies will calculate their pricing in two ways, either by the percentage of each payroll or by the flat rate per employee. No matter which option you decide to chose, you have to be aware that often the price for the PEO service does not include many crucial HR fees or rates. So in the end you can pay much more than expected.
Examples of additional fees/charges which can affect your monthly quote:
- Set up fee for the first employee in every new country
- Exchange rates
- EPLI (employment practices liability insurance)
- Background checks
- Employees’ business trips
- Training and consulting fees
- Support services for your employees
- Expenses reprocessed
- Reporting e.g. end of the year report
- Access to HR software …
- … and the list can go on and on
Ask for a cost breakdown and look for hidden fees to avoid unexpected surprises.
Do they use a software? 💻
There are still many companies which will use a traditional way of communication with you. This means exchanging numerous emails and phone calls about every single matter. You may want to check if the PEO that you consider has online capabilities. Being able to add your new hires, run payrolls, download reports, make reimbursement to your employees, or fill in the tax form, can save you a lot of time and frustration.
Do you know the type of clients of your potential PEO? 🏢
Do your research. Try to find out who the clients of PEO company that you consider are. Check the testimonials or referrals to get the idea of their customers. Why is it so important? Because by knowing who is their customer, you will know what this company is optimising for, which in turn will give you an idea of how your cooperation with them will look like. Ultimately, that gives you the answer if this company is a good fit or not.
If the typical client of a particular PEO is a Fortune 500 company that needs to hire just one General Manager abroad, they may not be the best fit for a remote-first company that has many employees in numerous countries.
PEO companies which are optimised for a corporate client will more likely be more expensive and slow. Think about it. Enterprises have enough time and resources to employ somebody in 3 months but small companies or startups don’t.
If PEOs are optimised for startups you can be sure that processes will run faster e.g quick onboarding, and offboarding. You can also expect transparent overview of the payroll in the app tailored to your need, alongside quick and reactive support service.
Take a look at the rules of contract termination 🚧
Your employees hired through PEO will often have a longer notice period written in their contracts. In some countries it can be as short as 1 month, but in others it can even be more than 6 months.
This termination period is counted from the day your PEO cancelled the contract, not from the day you let your PEO know to cancel it. It’s important to know how much time the PEO needs to process such a request, as it may be as long as 90 days.
What does it exactly mean for you?
Imagine you’d like to stop working with your employee that has 3 months notice period. You notified your employee, you agreed on the last day, and then you communicated this to your PEO. If it takes them 90 days to process such a request, you end up working with the employee for 6 months, not 3. During that time you don’t only pay your employer’s salary, but also a fee to your PEO.
That’s why before signing anything, you better make a word by word analysis of the contract and check the cancellation deadline.
Check where they operate 🌐
Many PEOs will advertise that they operate globally and are available in numerous countries.Always ask if they are active in your chosen country, as you may find out that the PEO doesn’t have employees there and their local subsidiary is inactive. To activate it you may additionally be charged and, what’s worse, wait up to even 5 months! Do you have that time?
How big is the deposit? 🏦
PEOs require deposits in case you will have delays in payments or won’t pay them at all. They are obliged to pay employees' salaries, regardless of whether they received money from you or not. Therefore, any PEO will secure their transactions and deposits are the most popular solution.
Some PEOs can ask you for 1 month deposit while others will request a 3 months deposit per employee. This can make a huge difference in your budget calculation. Check that carefully.
Do they have support for your employees? 🦺
You might think that support is not the most important thing but at the end of they day, experience of your employees is what matters the most. Their level of security is a high factor to their effectiveness and happiness. Check if the PEO has an emergency assistance for your employees and support service.
Your employee has a health issues and goes to the medical center that covers local employees of your PEO. In the center the employee receives an information that they can’t help him as that PEO company is not their customer. Does he have someone to can call on the spot and ask what to do or he has to send an email to the customer support in other country and wait for hours to get a reply?
If after reading this article you have more questions than answers and you still need more information, we encourage you to jump on the call with us. Pilot takes care of international payrolls and compliance and has an expertise in the research matter. We are sure we can give you a hand.
⚖️ Legal Disclaimer: The information contained in this site is provided for informational purposes only, and should not be construed as legal advice on any subject matter.