IndiaComplex labor laws, payroll intricacies, and talent acquisition hurdles can make managing a workforce in India overwhelming. A Professional Employer Organization (PEO) can help by co-employing your people and taking over HR responsibilities.
However, to manage employees through a PEO, you must set up an official business entity in India. On the other hand, unlike PEOs, an Employer of Record (EOR) service lets you hire, onboard, and manage staff in India without having to set up an official entity in the country.
Read on to learn more about the difference between Professional Employer Organization and Employer of Record and find the ideal solution for your needs.
What is a PEO (Professional Employer Organization)?
A Professional Employer Organization or PEO is a company that takes over some HR functions of businesses and co-employs their people. It requires companies to have a legal entity in the country where they employ people.
By assuming administrative HR functions such as payroll, benefits, and compliance, PEOs relieve you of the burden of people management. This leaves you with enough time and resources to focus on scaling business and employee engagement.
PEOs offer the following services to clients:
- Payroll processing
- Benefits administration
- Compliance management
- HR consulting
- Risk management
- Tax filings and withholdings
Benefits of using a PEO in India
A PEO can boost your HR strategy in the following ways:
Compliance expertise
PEOs can help you navigate the complex labor and tax laws of India which span several codes. This lowers the risks of penalties and legal actions.
Streamlined HR function
Outsourcing services can take over your payroll processing and hiring in India, relieving you of administrative burdens and repetitive tasks.
Benefits
PEOs pool together multiple clients to negotiate better rates for health insurance, retirement plans, and other employee benefits.
Employee onboarding
A PEO can help onboard new employees and introduce new hires to your workplace culture, policies, and procedures.
Challenges and limitations of PEOs in India
As we’ve already explored, you can’t use a PEO in India unless you have an established entity there already. Here are some of the other issues you might face when working with a PEO.
Compliance and legal complexities
Although PEOs share legal liabilities, the ultimate responsibility for adhering to labor laws rests with you. Meanwhile, disagreements about shared responsibilities can lead to ambiguities and potential legal complications.
Management and control issues
Your company will share operational control with the PEO. This will potentially slow down your decision-making and ability to take action independently. For example, if you decide to bring out a new performance review system, you would need to coordinate with the PEO to ensure it aligns with their existing processes.
Cost considerations
PEOs charge a sizeable fee for their services, which can be either a percentage of your employee payroll or a flat fee per employee. Their services may also carry hidden costs such as charges for additional HR support not included in the original quote or a termination fee.
Alternatives to PEO: Introduction to Employer of Record (EOR)
An EOR is an excellent solution If you want to hire in India but don’t want to set up a local entity. Here’s a closer look at how EORs work.
What is an Employer of Record (EOR)?
An Employer of Record (EOR) employs workers on behalf of a business. The EOR takes over time-consuming HR tasks such as hiring, payroll management, and benefits administration, while you manage your employees day-to-day.
Why consider an EOR in India?
EORs can offer considerable advantages over PEOs. With an EOR partner, you can hire in India without having to establish a subsidiary there. This can help you slash costs, cut risks, test new markets, and access a wider talent pool. Here we look at some of the other major benefits.
Reduced compliance woes
EORs take over the burden of compliance with Indian labor and tax laws. This reduces your risks of violations, allowing you to focus more on your core business. EORs in India boast teams of legal and HR experts who track regulatory updates and key them into your business.
Simplified management
The roles and responsibilities of an EOR are clearly spelled out. This prevents miscommunication and misalignment. You know what you need to oversee and maintain control of your operations and employees day-to-day.
Transparent cost structure
EORs don’t come with hidden fees that are typically associated with PEOs. Their pricing structures are fixed with no hidden costs. For example, Mindvalley, an edtech company, used Multiplier to hire workers in six countries, scaling without unexpected costs.
Deciding between PEO and EOR
Here are some points to keep in mind when finding the right solution for your needs.
When to choose a PEO
Here are some factors that make PEOs a good option for you:
- You want control over your HR function. A PEO gives you shared responsibility over tasks like benefits administration.
- You need local, HR support. A PEO’s comprehensive ongoing HR support can help you handle your workload.
- You want to remain the legal employer of your employees. PEOs are suitable if you have an entity established in the countries where your employees are located.
When to choose an EOR
Consider partnering with an EOR if you:
- Are entering a new market. The EOR will handle all legal and administrative tasks, allowing your company to operate without establishing local legal entities in new international markets.
- Need labor law expertise. Operating in new regions and countries with complex labor laws is a challenge. EORs handle everything compliance-related for you.
- Need predictable costs. Relying on an EOR is cost-effective. As EORs employ your people, you save costs by avoiding setting up legal entities or hiring administrative and legal staff in countries you hire from.
- Require flexibility in hiring. If you anticipate scaling up or scaling down your workforce in response to market demands or plan to expand into multiple countries simultaneously, an EOR gives you the flexibility to do so.
How Multiplier can help
Multiplier offers an efficient EOR solution designed to simplify and facilitate the global employment process for companies seeking international expansion in India and more than 150 other countries.
In an all-in-one platform, we oversee employment-related tasks, including payroll, tax obligations, benefits, expenses, and compliance with local labor and tax regulations.
EOR or PEO in India?
A PEO can bring several benefits to organizations that are looking to hire locally and outsource their HR functions. However, PEOs are co-employers, and this still makes you liable for legal violations. Hidden or unexpected costs can be an additional burden.
An alternative to the PEO arrangement is an EOR. It acts as a legal employer of your people, taking over employers’ legal risks. Your responsibilities with the EOR are clearly divided which makes decision-making swifter.
EORs like Multiplier allow you to expand globally, quickly without setting up local entities. That means a hassle-free experience with streamlined onboarding, payroll, and more.
