What is PEO and how is it changing the ways businesses do business?

Globalization and the internet have revolutionized commerce on a worldwide scale. All around the word businesses are getting into new markets, expanding product and service lines and acquiring clients in ways never imagined before. Business both on a local and international scale can be done in seconds instead of months or years. These changes in the ways business can be done not only has made it easier and quicker than ever before, but also the costs have considerably decreased.

Such modernization has also given the rise to needs that didn’t exist before, or weren’t that necessary. For example, businesses now need to be ever more present online and through social media. Larger corporations have needed to reduce personnel or at the least change the way they hire so as to be able to be more competitive. Smaller businesses need to leverage as best as possible new technologies so as to be able to stand out in an ever more competitive environment.

This leads to the topic of this article, PEO or Professional Employment Organization.

What is PEO?

A PEO is a outsourcing firm that provides hires individuals on behalf of a client. Many cases the outsourcing firm will be the employer on record and in fact establish the contractual relationship with the employee. The PEO firm will assure that the payroll, withholding of payroll taxes and payment of said taxes is done on behalf of the client. Depending on the engagement terms, the PEO may even provide other additional services such as human resources or team management.

Why hire a PEO firm?

Initially, it may seem somewhat counterproductive to hire an employee through an outsourcing firm, but upon further consideration there are some important benefits that should be taken into consideration.

For example, through using a outside firm your company reduces considerably the costs related to payroll and human resources. This is especially beneficial considering that a human resources department usually will not generate income and many times won’t affect the production of a product or provision of a service.

Also, since the PEO firm assumes the role of employer payroll audits fall under the responsibility of the firm.

In jurisdictions that require payment of special insurance or other types of employee benefits, when hiring a PEO firm this no longer becomes a concern for the client, instead the firm is responsible.

Hiring a PEO firm can considerably reduce a lot of problems related to human resources, paperwork, taxes and other related employee obligations, but it isn’t the only reason to make use of a outsourcing firm.

Global Expansion… now within reach!

Used to be that expanding your product or service in more than one location or even globally required a considerable capital, personnel and time investment.

Although, now PEO firms have assisted both small and medium sized businesses to hire individuals in new locations without having to pay the cost of rent, incorporation, local taxes and so on.

So, for example, a company in Nicaragua through a PEO firm could hire a sales representative in Costa Rica to be the representative of the company in that country and establish relationships with providers, suppliers, distributors and prospective clients,  without the need to physically be present in Costa Rica or wherever else in the world they want to go.

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Growing your company both locally or internationally is now a possibility that is available to many small to medium sized businesses. Of course, PEO services are the only method, there exist many other ways that a business can grow while at the same time minimizing liability and costs. For example, through licensing a product, franchising a brand or joint ventures which are some of the ways that in today’s modern business world business gets done.

SAENICSA is a accounting, tax and payroll firm located in Nicaragua. If you’re interested in knowing more about the PEO services we provide or about other topics, feel free to contact us HERE.