Why EORs and PEOs may be a Better Solution than Gig Engagements for Companies Expanding their Workforce Internationally

In today’s fast-paced global business landscape, organizations are increasingly facing the question of how best to expand their workforce while maintaining compliance, managing risk, and protecting their brand reputation.

The rise of the gig economy has brought about new ways of operating, enabling businesses to leverage the talents of independent contractors and freelancers. However, there are two other options that is gaining attention: Employer of Record (EOR) and Professional Employer Organization. [For a comparison, and to determine which might be a better fit, EOR or PEO, see our feature “PEO or EOR: Which is Right for Your Business Plans in Canada.”]

This article will delve into the various factors that make EORs and PEOs an attractive choice for companies and explore the potential downsides of gig engagements. At Pivotal HR Solutions, we have years of experience implementing both solutions.

 

 

Understanding the EOR and PEO Models

A Employer of Record (EOR^[1], or PEO, serves as a co-employer for a company’s employees, taking responsibility for employment-related tasks, including payroll administration, benefits administration, and ensuring compliance with local and international laws. This leaves the client company free to focus on their core business operations without the need to worry about the complexities of managing human resources. Both solutions give your company brand more control over your business plans versus a third-party gig, but EOR is the more “full service” approach and is often the most efficient. It also tends to offer the most liability protection and other benefits. Either EOR or PEO offer signicant cost savings, brand control, team intergration and liability protection over the average gig contractor.

One of the critical advantages of a EORs or PEOs is the ability to provide businesses with an instant presence in a new market. When a company chooses to expand its operations internationally, it typically faces a myriad of regulatory hurdles and the challenges of understanding a new business culture. With a EOR or PEO, businesses can mitigate these obstacles, as they already have the infrastructure in place and are familiar with local labor laws and regulations.

 

EORs and PEOs vs. Gig Engagements: A Comparison

The advent of the gig economy has ushered in an era of unprecedented flexibility for businesses worldwide. It offers the enticing prospect of on-demand talent acquisition, allowing companies to hire freelancers for specific projects or during peak periods. This approach can lead to significant cost savings as companies can optimize their workforce based on immediate needs and scale down when demand is low.

However, EORs and PEOs offer similar flexibility (especially rapid expansion or contraction), tighter integration with the company brand, lower cost, and protection from liability.

While Gig engagements might seem attractive on the surface, it comes bundled with its own set of unique challenges. Hiring gig workers, especially on an international scale, can involve navigating complex regulatory landscapes, managing unpredictable workforce engagement, and assuming the responsibility of providing competitive benefits, among others. There are also significant barriers to entry in terms of brand and communications. A contractor or gig worker likely can’t convey the essence of the brand.

For example, tech support can be set up in various countries using all three approaches, but it is difficult to integrate a gig or contract support person, since they likely won’t work exclusively for the company, or have a company contact information. Small details like this can be easily handled by an EOR.

Furthermore, this model necessitates a new level of agility and adaptability in workforce management. Companies need to be equipped to hire swiftly, onboard efficiently, and manage a potentially dispersed workforce, each aspect bringing its own set of hurdles. As such, it’s essential for companies to understand the implications fully and weigh them against the perceived benefits of gig engagements.

Next, let’s explore these challenges in more detail and examine how partnering with a Professional Employer Organization (PEO) could offer a comprehensive solution for businesses looking to expand their workforce internationally.

Liability and Compliance: Navigating a Complex Landscape

Hiring freelancers or independent contractors across international borders is not a straightforward task. It introduces a mosaic of complex legal and regulatory issues that businesses must address. Companies need to be thoroughly versed in the employment laws of each country in which they operate to avoid costly missteps. This requirement is not a trivial one. The consequences of non-compliance can be severe, including hefty penalties, legal entanglements, and even irreparable damage to the company’s reputation.

For instance, in some countries, there is a risk that independent contractors could be legally reclassified as employees if they meet certain conditions. This reclassification could expose the company to unexpected liabilities, such as back taxes, unpaid benefits, and fines. Such scenarios can significantly strain a company’s resources and reputation. Furthermore, laws regarding freelance or gig workers are still evolving, adding another layer of uncertainty and risk for companies operating in the gig economy.

In contrast, PEOs are well-equipped to navigate this challenging landscape. They have in-depth knowledge of employment laws in their operating countries and are continually updating their knowledge base to remain current with changes and developments. PEOs manage all aspects of compliance, ranging from taxes and labor laws to employment contracts and benefits. Their comprehensive services significantly reduce the risk of non-compliance and the associated penalties.

Partnering with a PEO essentially transfers a great deal of the company’s liability to the PEO, ensuring strict adherence to local and international laws. By leveraging the expertise of PEOs, companies can focus on their core business objectives, secure in the knowledge that their employment practices are compliant and their potential liabilities are well-managed.

Brand Reputation: The Power of Perception

In the gig economy, the relationship between a company and its workforce is often more transactional. This change in dynamics can potentially impact the company’s reputation. Since gig workers might not feel a strong sense of loyalty or connection to the companies they work for, their interactions with clients and public statements about the company could potentially be less favorable.

Freelancers or independent contractors may not feel as invested in the company’s mission or values, which could impact their work quality or commitment. This lack of connection can have a ripple effect, impacting client relationships and ultimately, the company’s reputation in the market.

In contrast, when partnering with a EOR, workers are officially employees of the EOR even though they perform work for the client company. This structure fosters a sense of stability and commitment, creating more aligned incentives and potentially fostering a more engaged and motivated workforce. Workers may feel a stronger affiliation with the company, which can positively influence their work and their interactions with clients.

Furthermore, EORs often provide their employees with attractive benefits packages and support in their career growth, both of which can enhance job satisfaction and commitment. A more engaged and satisfied workforce can contribute positively to a company’s brand reputation, promoting it as an employer that values its people and their contribution.

The positive reputation fostered through partnering with an EOR or PEO can have far-reaching effects. It can help attract top talent, foster client trust, and create a positive image in the market. This intangible asset, built on the back of a strong workforce, can provide companies with a competitive edge, demonstrating the unique advantages that EOR/PEO partnerships offer over gig engagements.

Access to Benefits: A Critical Factor

One of the major challenges that confront businesses operating in the gig economy is the provision of benefits. In traditional employment models, companies are expected to provide their employees with a range of benefits, including health insurance, retirement savings plans, paid leave, and more. However, in the gig economy, the responsibility of managing these benefits often falls onto the shoulders of the workers themselves.

Being responsible for their own benefits can be a daunting prospect for many gig workers, leading to potential financial instability and a lack of security. This lack of a comprehensive benefits package can put companies at a disadvantage when trying to attract top talent. With the world becoming increasingly competitive, the ability to offer an attractive benefits package can make a significant difference in a company’s ability to attract and retain the best talent.

However, with EORs, this landscape changes drastically. EORs are in a unique position to offer comprehensive benefits packages. Because they serve multiple client companies, they can leverage their larger pool of employees to negotiate better rates and terms with benefits providers. This allows them to offer high-quality benefits that might be beyond the reach of individual companies, especially small and medium-sized businesses.

Moreover, by offering benefits packages that are on par with those provided by larger corporations, EORs and PEOs help level the playing field for smaller companies. This not only makes positions more attractive to potential employees, but it also enhances a company’s brand image, portraying it as an employer that values and takes care of its workforce. Consequently, companies that partner with EORs and PEOs often find themselves in a more competitive position in the global talent marketplace, giving them a vital edge in their expansion endeavors.

This capacity to provide robust benefits packages demonstrates yet another way that EORs and PEOs can provide significant advantages over gig engagements, particularly when it comes to attracting and retaining the skilled personnel needed to drive business success.

Key Takeaways

While the gig economy offers businesses the opportunity to expand rapidly with a flexible workforce, it also presents significant challenges and potential risks. EORs and PEOs provide two  attractive alternatives, offering businesses a straightforward way to expand internationally while mitigating risk, ensuring compliance, managing benefits, and protecting brand reputation, rapid deployment and other benefits.

Overall, businesses that are looking to expand their workforce internationally would do well to consider the potential advantages of partnering either with an EOR or PEO, depending on the scale of your needs. The choice between a EOR/PEO and gig engagements will depend on a company’s specific needs and circumstances, but it’s clear that EORs and PEOs offer significant advantages that should not be overlooked.

The shifting landscape of the global workforce requires businesses to stay informed and adaptable. As the business world continues to evolve, EORs and PEOs are likely to play an increasingly important role in helping companies manage their international expansion effectively and efficiently.

 

Sources

[1] – https://www.eorpeo.com/blog/understanding-the-changing-role-of-peos-in-the-gig-economy/