Can a company be too small for PEO services? This is an important question.
When a business expands globally, it becomes important to track the costs of hiring people in foreign markets. While large businesses have the option to set up a legal entity, small businesses cannot afford such setups and therefore look to PEO or Professional Employer Organizations to outsource their HR services.
However, many small business owners wonder whether the scale and size of their business are adequate enough for them to work with a global PEO. In this post, we aim to answer this often-asked question: can a company be too small for a PEO?
What PEOs do for Businesses
For any small business, entrepreneur, or start-up, fewer things matter more than keeping their finances in order, spending conscientiously, and limiting their cash burn. As a business grows, it needs to start spending more on product development, client acquisition, with a view to harnessing the market demand.
In order to capitalize on traction, businesses need to hire the right talent to support its growth and keep the momentum. With the rise of the gig economy and the internet-breaking borders, many companies choose to hire talent in offshore markets to leverage the availability of cheaper labor and improve their unit economics. While large companies can afford to set up a legal entity abroad, it is often a lot more difficult for a small business to benefit from this kind of ‘locational-arbitrage’ because it’s neither cost-effective nor free from risks.
PEOs exist to solve this problem for businesses. Small businesses that cannot afford to set up a legal entity in a foreign market or are unwilling to undertake expansion exercises, find it financially feasible and practical to partner with PEOs.
PEOs help businesses with recruitments, employee retention, international payroll management, and contract management in a foreign market. A PEO can ease the process of finding the right talent for the business, and then retain them for the business in an unknown territory, thus reducing risks. A PEO can also manage the tax, business, and HR compliances through its network of local experts in the country.
However, some businesses shy away from working with international PEOs because of a misconceived assumption that their business is too small for PEO services. This makes it important to understand if an organization’s size is optimum for PEO before it decides to enter a foreign market. At the heart of this misconception is the question: can a company be too small to use PEO services?
Can A Company Be Too Small for PEO Services?
The best way to know if a company is too small for PEO services is to examine its size and its current scale of operations. The human capital needs of a business are also decisive in understanding its suitability for PEO services.
Companies with 1-20 Employees
A small business or start-up launches with a small workforce to perform its day-to-day operations. When a small company has less than 20 employees, it prefers to handle its HR tasks (relating to salary, payroll, employee benefits, etc.) in-house. Thus, when a company this size plans for global expansion, the best option for it is to associate with a PEO.
For a small business, partnering up with a PEO can mean cost reductions of up to 60%. A small company can outsource its HR functions to an international PEO while setting up in a foreign country. A PEO can provide cost-efficient solutions to the company for its entry and HR management in the new country.
Companies with 20-50 employees
When a business grows, so does its workforce. This is because of the need to catch up its operational ability to meet the growing demand for its products or services. A company with 20-50 employees may have an in-house HR manager to manage its recruitments, retention, and firing. However, in the case of global expansion, an in-house HR manager in the native country will likely prove to be ineffective.
A company this size may want to work with a PEO to effectively merge its in-house and outsourced HR activities. A PEO can collaborate with the existing HR manager and synchronize the company’s HR activities in the local and international markets.
Companies with 50-500 employees
A company employing hundreds of employees requires a robust HR department with HR managers and associates. Such a company is bound to expand its team when it plans to enter new markets. However, an in-house team may prove to be a costly and time-consuming affair for large-scale expansions. Additional problems may arise when it comes to hiring and payroll management of foreign employees as per their local laws.
A large organization of this scale can save the hassle of HR management by using a PEO to handle its recruitment and expansion abroad. A PEO can help a large organization in strategizing its hiring and compliance activities in a foreign country. This would help the company to expand its talent pool without spending to expand its HR department.
How PEOs Simplify HR Management for Small Businesses
The answer to the question if a company can be too small for PEO services is: no. A PEO can help a business with its staffing and payroll needs regardless of its size. Moreover, a PEO can help small businesses in reducing their administrative burdens associated with global expansion.
Businesses do not need to shed a large amount of money or time to effectively manage their payroll and compliances. A PEO like New Horizons Global Partners provides end-to-end solutions to businesses when it comes to their staffing requirements.
A PEO also enables a small business to efficiently manage its employee benefits in a foreign country. It can help the business to acquire and retain talent abroad effortlessly and handle its contractual and legal obligations diligently. PEOs like NHGP can also assist a small company in choosing the best market entry strategy.
A business can easily find and connect with local experts in an alien market and save money and time required to set up its base in the country. A PEO can also make employee-related regulatory and tax compliance easier for the business and keep it up-to-date with the recent changes in the applicable-regulations.
PEOs unburden companies by managing their HR and payroll requirements in a foreign market irrespective of the company’s size. They make global expansion a smoother experience for businesses, while they remain on their path to global success.