Leveraging an EOR or PEO for Operational Efficiency

Whether you’re planning to expand globally or augment your existing HR capabilities, an Employer of Record (“EOR”) or Professional Employment Organization (“PEO”) can be a powerful HR solution. EORs and PEOs allow companies to outsource core HR services like payroll and benefits administration, employee onboarding, tax deductions, and regulatory compliance. However, they are structured and operate very differently. As workforces become increasingly distributed and the market for talent heats up, companies of all sizes are using flexible solutions like EORs and PEOs and wondering how to maximize their benefit.

A recent conversation between executives in The Circle led by Karen Walker (CFO of Sysdig), Phil Strazzulla (Founder & CEO of SelectSoftware Reviews), and Luke Ferrel (Global Head of Customer Success at Deel) offered insights on how EORs and PEOs can support global expansion and best practices for setup, management and the employee experience.

A Compliant Way to Expand Your Workforce

Companies that want to hire and onboard employees quickly can use EORs and PEOs to scale their talent recruitment, onboarding, and employee management practices. These solutions can be used in place of or in junction with HR teams, generally with desired outcomes in mind:

1. Freeing up capital and resources to put towards other growth initiatives
2. Streamlining and enhancing existing HR services and benefits to better attract and retain talent
3. Mitigating compliance and employment risks

The conversation did not cover the nuances of EORs and PEOs, as leaders were keenly interested in discussing how EORs support global workforces. Whether a company wants to test the waters doing business in a new territory or to source talent in a foreign jurisdiction, an EOR allows it to circumvent the arduous process of setting up a business entity. Karen noted that this can be a valuable interim strategy, as setting up and maintaining compliance for a foreign business entity can involve a lot of legal and compliance legwork. 

One of the most essential features of an EOR or PEO is helping companies navigate local guidelines and tax laws in the jurisdictions where they have employees. “Our number one job is to ensure you’re compliant,” explained Luke. “But we can also offer expertise around some of the cultural norms and long-term liabilities of hiring and managing employees in a certain location that will come in handy as you think through your workforce expansion strategy.”

Maximizing the Impact of an EOR or PEO 

There are dozens of EOR and PEO providers with different features and benefits. Without diving into specific systems or platforms, our experts shared three important guidelines for selecting and implementing an EOR or PEO solution:

#1 Choose a Partner That Integrates With Your Software Stack
Beyond their role as an interim HR solution, EORs or PEOs can also bring operational efficiencies across the organization. Depending on who you select, there may be opportunities to streamline system integrations, minimize redundancies, and improve workflows. Phil advises leaders to consider their long-term needs, existing HR and finance software stack, and how a prospective EOR or PEO might integrate. 

“PEOs and EORs are evolving to become more comprehensive HRIS solutions. You want a partner that’s aligned with where you’re going as a company, and that is quickly building the best-in-class features you’re going to need in the next 3 to 5 years.” – Phil Strazzulla (Founder & CEO of SelectSoftwareReviews)

#2 Don’t Shortcut the Onboarding Process

Naturally, companies will want to hit go immediately on hiring once they’ve implemented an EOR or PEO; however, Luke recommends leaders take the time to set up their system and analyze the long-term liabilities of using an EOR in a specific jurisdiction.

“Think about how you want to set up your instance long-term. You probably want to integrate with your Netsuite or your expense management system – starting that process during the onboarding phase will save you a lot of time downstream. At the same time, it’s important to understand the approaches to take when setting up in a given country and how that might impact your expansion strategy.” – Luke Ferrel (Global Head of Customer Success at Deel)

#3 Leverage Your EOR/PEO for Data and Guidance

Beyond streamlining HR tasks and processes, your EOR or PEO can be a valuable resource to guide business and talent expansion decisions. For instance, some EORs offer payroll calculators that identify the cost of employing someone in a specific location based on compensation benchmarks. EORs and PEOs can also provide a lot of anecdotal guidance on hiring and employee management practices, given that they work with many different companies.

Whether you’re outsourcing to a PEO or EOR, critical decisions on hiring or talent expansion always require a cross-functional in-house team, said Karen.

“Even with a great EOR partner, the company’s Finance, Legal, and HR teams need to lead and be aligned on where the business is expanding, the potential costs and liabilities, and various aspects of the employee experience – from how you’re setting up employment agreements down to the currency you’re using to pay them.” – Karen Walker, CFO of Sysdig

Moving Providers or to a Business Entity

Naturally, every company will want to do a cost-benefit analysis of their existing EOR or PEO solution to determine if they need a new provider or whether establishing a business entity might make more sense. There are a few factors that should help guide that decision:

• Employee Headcount in a Jurisdiction – It can be helpful to set an internal threshold for the number of employees in a jurisdiction, after which it makes sense to transition to a direct business entity. “The general rule of thumb is that if you have 25 full-time employees in a jurisdiction, that’s when the math starts to make sense in justifying the cost and operational complexity of having your own entity,” said Phil. 
• Entity Setup/Management Costs – The costs of setting up and operating a business entity will vary by country. In countries like Canada, setting up a business entity is relatively simple. In contrast, other countries have more complex setup rules and restrictions around employment arrangements or tax liabilities that continue even after an entity is dissolved.
• Employee Experience – Most notably, companies will want to prioritize employee experience when evaluating a new provider or considering transitioning from one. Many companies reach a point where they need a more robust equity and benefits package than the ones offered by their existing PEO or EOR solution. Always remember how transitioning providers will impact your employees, both in terms of the logistical complexity and how it will change their experience. At the same time, consider how switching providers might alter your existing HR workflow. For instance, if you create separate business entities in areas an EOR has previously managed, you might have to set up and manage multiple payroll providers.

The Takeaway

When deciding to implement a PEO or EOR solution, it’s essential to consider the specific needs of your business, the scope of services required, and  long-term goals for  expansion. Look for a partner that will integrate well with your existing systems and processes and that can help you make more informed decisions about where and how to expand.

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