EN  |      HE

What is PEO & What is its Importance in the Days of Covid-19

By Doron Neev
Just a few months ago, the global human resources world dealt in depth with the topic of "talent management" to find skilled and talented employees for such and such positions all over the world. But after a few months of living with Covid-19, some of us have managed to forget the issue and some of us continue with it but not necessarily with effective solutions to the issue.

In any large company, staff members may find themselves overwhelmed by the handling of salaries, benefits, or countless issues in which the human resources body in the organization is engaged. Also, not all HR workers are properly versed in payroll and benefits. They are unable to perform this work in a way that will attract good employees.


They also may lack the knowledge required to maintain the company at the ever-changing level of compliance among countless other HR challenges. Compliance regulations require work with the various authorities, especially the tax and judicial authorities and mistakes here can cause considerable damage, not to mention such other legal proceedings.


This is where the concept called in the world, Professional Employment Organization (PEO) comes into play.


PEO is a joint employer, a company that provides comprehensive human resources services, such as payroll processing, benefits management, compliance with regulations, submitting monthly / annual reports to authorities, recruitment and training, handling foreign workers from the administrative side such as work permits, payroll (Expatriates) and more. In principle, PEO functions as the company's outsourced human resources department, providing access to expert services and services at reasonable prices that the company cannot handle on its own.


But the main emphasis in this activity is usually on wage issues and benefits and all that goes with them and less on dealing with the softer issues of human resources such as recruitment or personal care for the various needs of the employees.


One of the main issues to be addressed by PEO, for example, is when a foreign company that does not have a registration of a legal entity in Israel (Or any country they wish to operate in) has , for its own reasons, to recruit workers (Locals / or even foreign experts) and employ them in Israel (or any other country), while maintaining the required tax and labor laws.


In the era of the Covid-19 and the attempts to reduce employee mobility, any company that needs business activity in any country in the world, but does not have a legal entity, can use PEO services and thus avoid mobilizing expensive employees from home country, expatriate them for the host country and of course register a legal entity in the foreign country.


The various PEO companies (which in many cases have networks or professional connections between them and thus can help customers in many countries) can offer such services because they are business partners with the companies that employ them. The Collaboration-Business Relationship - This allows the PEO to take on more responsibility from employers more than what can be achieved through certain types of "regular" human resource outsourcing.


This form of joint employment allows PEO organizations to employ employees from a large number of companies, small or even larger, and thanks to greater bargaining power, to offer services and benefits as much as a large company or organization, resulting in better insurance prices, health, employee benefits, various insurances and other services needed by employees.


As a strategic partner, PEO can also take on shared risks of employers. For example, PEO can ensure that layoffs have legal basis and dispute resolution tools, and it may provide additional protection to a business facing an employee lawsuit.


Payroll companies, for example, do not have joint employers. They are independent service providers. Although they process payroll and file government tax returns on behalf of the customer, customer employees do not become supplier employees, so they do not share risk in the same way as PEO. These companies (Payroll, for example, provide independent services) work on behalf of their customers to provide this service.


What is The Role of the Company with PEO?

When a company cooperates with PEO, the company continues to control the activities and roles of the employees, while the PEO assumes the employer's responsibility related to the employment of the employees, such as wages, benefits, and tax transfer, as specified in the service agreement. From the point of view of employees, for the most part, they will only see the name of the PEO on their pay slips and in media and paperwork related to human resources.


What do PEO Services Provide?

Each PEO is different in terms of its specific service offerings and the flexibility to customize to customer needs. The PEO may offer the following services:

  • The PEO may have access to a wider range and a higher quality of benefits than a small to medium-sized organizations.
  • Wage processing includes wage compliance and order management, an operation required by law in most countries.
  • Employee Compensation Management (US).
  • Assistance in compliance, with access to experts who are naturally updated on the details of the labor laws and the ever-changing employment requirements.
  • Human resource management, support for human resources personnel in a company with a variety of services, including employer liability management, risk reduction, termination assistance, vacation management, or other types of services.
  • Training and development of employees.
  • Recruitment and employment.
  • Strategic HR planning, such as planning how to attract talent to the company and manage HR costs.

Although PEOs offer many services, customers can usually choose only the services they need and thus lower the cost of PEO services.


Disadvantages of Using PEO

Although there are many advantages of using PEO, there are also some disadvantages, such as:

  • Inability to conduct certain choices. If the company's employees are satisfied with their current benefits, but the PEO wants to change plans, the company does not have much to do about it, because the PEO controls these choices.
  • Unexpected changes. If the PEO, as its own company, decides that its partner company has too much responsibility/risk, it can transfer it in the PEO company to a higher risk category , and make the price of its services higher.
  • Cash flow issues. PEOs may request certain payments as a down payment to meet their set dates, and this may affect the affiliate's cash flow in unexpected ways.
  • Potential financial risk. Because the PEO becomes a co-employer for the company’s workforce, the company still retains some legal liability of the employer (such as reporting unemployment claims). If it is audited (by the authorities for example), and has committed an offense, the company may still be fined for certain employment responsibilities, even if it works with PEO.


An EOR Alternative to PEO

If an organization is not interested in engaging in a collaboration arrangement, or is not interested in the full outsourcing of all of its human resources roles in collaboration (PEO), a partnership with a company that provides Employer of Record (EOR) services may be a better choice.


EOR offers certain services like PEO. But EOR becomes the full legal employer (not a partner employer) of employees paid by EOR. The organization handles salaries, taxes, salary compliance, benefit management, reporting unemployment claims and related tasks.


This distinction is relevant, especially as the organization expands to other countries, as employment laws and regulations become more complex for companies operating beyond the borders of their original country. If a company works with PEO, the company still has a duty to determine the number of employees it needs in one country or another with all that entails (work permits, or local employment rules, etc.).


Conversely, if an EOR partner of a particular company has already been established in one country or another, the company (customer) can legally employ workers in those countries through the EOR because the company does not bear the responsibility of collaborations. Usually the EOR may more easily find employees in the country where it operates for the benefit of the client company that is probably based in another country.


Both methods make it easier for small and medium-sized and even large companies that do not always want to establish a legal entity. Or if they want to reduce some of the human resources management burden.


In this difficult time, we live in, these arrangements still make it easier to move experts or hire experts without the need for all the bureaucratic burden and heavy costs (lawyers, tax consultants, accountants, etc.). This can also save dealing with all the Covid-19 restrictions that make it very difficult to enter foreign workers to different countries.


Our company has been dealing with the subject for many years. In the past, we served several Israeli companies that needed services in the European Union.


We are affiliated with a few networks and can provide this service not only in Israel but also in the US, Europe, Asia, and Africa.