If you’re hiring internationally for the first time you’ve probably noticed how complicated it can get! For example, what are the local payroll laws, and what are the consequences for getting it wrong? How do I ensure taxes are deducted and paid correctly? As you navigate these questions, you may find yourself debating between employee leasing through a PEO, or one of the many PEO alternatives. Hiring independent contractors, creating a local subsidiary, and outsourcing payroll all have their advantages and disadvantages.
To help you discover the right option for your business, in this blog we outline the pros and cons of PEOs and PEO alternatives.
Why Choose A PEO Alternative
While PEOs are a great option for companies looking to expand internationally, sometimes a PEO alternative is the better fit. PEOs specialize in assisting companies expand rapidly and compliantly, without opening a local subsidiary. They hire your workers and then lease them back to you, while delivering a range of payroll and HR services. Companies that want to open and build up a local subsidiary may find PEOs limiting. Whereas companies hiring a project-based contract workforce may opt for contractor payroll instead of PEO services.
Whether or not a PEO or one of the many PEO alternatives is the right fit, depends on your specific business needs.
PEO Alternatives
Employee Leasing vs PEO
A Professional Employer Organization (PEO) is a third-party company that delivers a variety of payroll, human resources, and employment outsourcing solutions. Employee leasing, or employer of records services, is one of them. The PEO becomes the employer of record for your team and then leases them back to you. You manage their day to day, while the PEO handles all the employer payroll and tax obligations. This allows you to hire compliantly without a local entity.
ASO vs PEO
An Administrative Services Organization (ASO) provides similar services to a PEO but does not offer employee leasing services. The ASO handles payroll, tax filings, and a range of other HR services for you, but does not take on employment compliance. The ASO can work with you to create a benefits package, but your team cannot be pooled with those of other ASO clients. To work with an ASO you must open a local subsidiary and register to pay taxes.
HRO vs PEO
Human Resources Outsourcing (HRO) is similar to the ASO model, but with an emphasis on HR services including recruiting, structuring compensation and benefits, workforce planning and development, and employee training and relations. Some HROs also offer payroll processing and tax filing. Just like ASOs, HROs do not offer employer of record services, and you must open a local subsidiary.
Staffing Agency vs PEO
At first glance, staffing agencies offer a service similar to employee leasing. The agency handles payroll and tax filings and is the employer of record for all their workers, while you direct their day to day. The difference is that staffing agencies supply contingent labour from their own stable of workers, while PEOs facilitate hiring long-term employees of your own choice, and who become part of your team. PEOs allow you to build long lasting relationships with employees outside of your home country.
AOR vs PEO
Another PEO alternative is working with an Agent of Record (AOR) that can deliver contractor payroll. An AOR delivers payroll and compliance services for companies looking to hire independent or incorporated contractors. They process invoices, expenses, and payments for your contractor workforce and reduce your risk of worker misclassification. Working with an AOR is not a substitute for working with a PEO; it is a similar service but one that’s only appropriate for contractors.
Hiring Contractors vs PEO
The last PEO alternative is hiring contractors directly, without using an AOR. Because they enter into a business-to-business relationship, companies can hire foreign contractors from anywhere in the world, without setting up a local entity. This is by far the simplest option for engaging workers outside of your home country, but it’s not one that’s without risk.
The Canadian Revenue Agency is looking closely at US companies for worker misclassification and other violations. Misclassification occurs when you hire workers as contractors but treat them exactly like employees, to save money on taxes and benefits, and the fines for it can be steep.
What Makes Canadian Payroll Services Different
While PEO alternatives are great options for some companies, PEOs provide an end-to-end solution, from payroll to benefits to compliance to recruiting.
Canadian Payroll Services is a PEO that delivers employer of record and agent of record services. We help our clients navigate expanding into Canada, understanding worker classification, and hiring their team compliantly. Unlike many PEOs, we match our clients and their workers to a team of certified HR account managers and payroll practitioners so that you can get the employment outsourcing package that’s right for you.
If you’d like to learn more about how Canadian Payroll Services can help, contact us today!
