Professional Employer Organization Made Easy
If you are considering expanding your business to Thailand, you may have considered setting up a foreign company in Thailand. However, for many companies, there is a more affordable, faster, and less stressful way of hiring employees in a compliant manner in Thailand. That solution is using a Professional Employer Organization (PEO).
Here, we explain what is the meaning of PEO and its model so you understand how you can rapidly deploy labor to Thailand, a new country of operations for your organization.
Professional Employer Organization Meaning
First of all, let’s consider what does PEO stand for. PEO is the acronym for Professional Employment Organization. It is currently the best option for startups and growing companies requiring administrative work for a new entrance into the Thailand market.
The technical PEO meaning is an entity that provides employee management services and administrative assistance, including payroll processing, onboarding, recruiting, benefits management, and HR services to Thailand.
What is a Professional Employer Organization?
PEO is a company like Smart Search Recruitment that manages human resource (HR) outsourcingand other administrative tasks for our clients.
A PEO is an innovative means of having a human resource (HR) infrastructure without the need for spending the usual efforts required to make the organization run successfully.
It cannot be denied that among growing businesses, the same focus on all aspects of the organizations may not be achieved. There simply is not enough time to take care of everything.
This is where the value of PEOs comes in. Through a PEO, companies could be relieved of obstacles relating to the administration and other employee-related operations that could keep them from achieving their objectives.
This article will serve as a comprehensive guide of all you will need to know about a PEO.
Structure of a Professional Employer Organization
In some markets, PEOs are referred to as co-employers, an apt name given the structure of a PEO.
PEOs like Smart Search Recruitment hire employees directly and handle administrative tasks like processing international payroll and tax distributions to Thai authorities on behave of its clients. Meanwhile, the client business maintains day-to-day control over the employees. In this type of partnership, PEO serves as the “employer of record” for insurance and tax purposes so it takes on administrative burdens and all legal compliance matters with Thai Labor Law and employment regulations.
The employees, however, still receive their work assignments and instructions from the client company. This arrangement helps reduce costs because the responsibilities of the employment relationship are shared between the parties. Additionally, it lowers the costs of operations in the new country like Thailand, allowing the company to be competitive with larger companies that might already be established here.
As we mentioned, the PEO serves as a co-employer of the clients, which are typically small and medium-sized organizations. It is focused solely on the HR and administrative needs of the business, thereby making the latter more productive.
The partnership existing between the PEO and the client company is referred to as a co-employment relationship.
Under this arrangement, the PEO shares employer responsibilities with the client company depending on the terms of their contract. Under this model, the employees serve as the workforce of both the PEO and the client company, thus giving the latter access to a ready-made HR, payroll, benefit, taxation and compliance infrastructure.
What is Co-Employment
The Co-Employment Relationship
The co-employment arrangement with a PEO not only allows company executives and managers to focus on how the business can gain profits but also reduce its legal risks and liabilities. PEOs also help mitigate normal costs relating to health insurance and employee benefits. This is made possible by the fact that PEOs take on various clients, thus pooling employees of the clients on its payroll.
This model is able to allow a PEO to have a huge number of employees, even hundreds of thousands across client companies in a country like Thailand. As such, it is able to easily standardize HR processes and drive down costs of health insurance. This enables a PEO to gain scale economies when providing services and performing tasks.
Given the advantages brought about by the co-employment partnership, the former is able to provide employees with above-average remuneration, while the client company is able to access high-quality employees at a lower cost.
Besides an unlimited number of employees, the client company is also able to partake in standardized HR practices and policies, training resources for employees, risk management support, workers’ compensation, health insurance coverage, benefit plans, and many other administrative requirements.
How Does a PEO Work?
PEOs differ from one another particularly with the services they offer. However, no matter how varied they are from each other, they offer some fundamental services to client companies.
The specific services that a PEO provides are outlined in the service agreement with the client business.
Common PEO Services:
Human Resource Services
PEOs like Smart Search are experts in Thailand labor laws and taxation regulations. They can assist foreign and Thailand based companies with compliance adherence, severance pay, and other human resources services. They can also provide compliant labor contracts that adhere to local and national regulations and market norms.
PEOs handle the payroll process in a manner that complies with the Thailand jurisdiction and make payments to employees. This involves such work as payroll/wages/salary reparation, tax solutions/contributions, check deliveries, the filing of taxes, application and implementation of related laws, ensuring on-time payment of employees, and other payroll-related matters.
This service is quite comprehensive and small businesses that partners with PEOs benefit greatly from high-quality benefits normally offered to employees by PEOs, which are on par with big organizations. PEOs administer benefits and coordinate insurance schemes. They handle the administration of allowances, vacation pay, sick leave, and other benefits provided by the client company.
PEOs calculate and distribute tax contributions, including social security contributions.
Risk and Compliance Services
While all businesses involve risks, exposure to them can be minimized, particularly with the help of a PEO. Startups and small/medium-sized companies may not immediately determine the possible risks involved in the business, which PEOs can do for them. Moreover, the expertise of PEOs with regard to compliance and statutory requirements, especially in other countries, may not be paralleled by the company itself. PEOs handle matters under this service such as employee complaints/lawsuits, workplace safety requirements and implementation, Workers’ Compensation management, etc.
Benefits of Using a PEO
PEOs like Smart Search Recruitment are =staffed with experts in human resources, tax, legal, and payroll functions. Having a business arrangement with Smart Search Recruitment can often allow a company to expand faster, more affordably, and with less risk than other alternatives.
Some of the most important benefits of using a PEO include:
Using a PEO allows you to skip expensive and time-consuming processes. The biggest cost saver is in not having to establish a separate legal entity in Thailand. Additionally, PEOs use best practices and help streamline the onboarding process. According to the National Association of Professional Employer Organizations, small businesses that work with PEOs have an employee turnover rate that is 10% to 14% lower than others and grow 7% to 9% faster. PEOs lower the costs of administering benefits. Smart Search Recruitment use best practices to further cut administrative costs. Working with a global PEO can also help you streamline the expansion process so that you have predictable expenses.
Faster Market Entry
Because your company does not have to wait for the bureaucratic approval associated with establishing a separate entity in Thailand, you can enter the market faster and take advantage of opportunities faster. In many situations, you can deploy staff in a matter of days.
One of the biggest challenges for foreign companies expanding to Thailand is implementing a compliant payroll system. Countries like Thailand have different laws regarding payroll, and it is difficult for foreign companies to understand the nuances of the Thailand employment law and regulations
One of the most significant benefits of using an experienced PEO like Smart Search Recruitment is being able to outsource the complex task of regulatory compliance to a local expert. Foreign businesses may be hesitant to get involved with bureaucratic agencies. Smart Search Recruitment can help guide client companies through the process of hiring international employees in a compliant manner, compensating them according to local Thai laws and regulations, and severing the employment relationship if this becomes necessary. Additionally, PEOs can ensure that the proper amount of tax is withheld from employee compensation, that employees receive their statutory benefits, and that employees are paid consistently with the law.
Simplified Termination Procedures
Thailand labor laws on termination and on the winding down of a business can prove highly complex and involves lengthy and costly procedures and compliance issues. Failure to properly wind down a foreign business in Thailand may even result in the continuous accumulation of taxes even if the business no longer operates. With Smart Search Recruitment, all these can be achieved at less effort and time, with less cost.
Testing a New Market Limiting Risks
Any business has its risks. It may or may not succeed especially in a country like Thailand where it has yet to test the market. However, doing so can prove quite expensive. By getting the services of a PEO, foreign businesses can mitigate the cost of building a new branch or subsidiary. Partnering with Smart Search Recruitment helps reduce risk and offers valuable peace of mind. Laws related to employment, taxes and employee benefits are constantly changing, and a good PEO stays up to date with these changes, so you can rest assured that your business runs in a compliant manner.
Who Should Use a PEO?
Companies wanting to expand abroad should consider a PEO. They will get access to assistance with their HR, compliance, payroll and tax functions. Startups, small, mid-sized, and even Fortune 500 companies have successfully used PEOs like Smart Search Recruitment. An IT outsourcing company that used Smart Search Recruitment for example, was able to develop brand recognition among Thailand companies and establish new business relationships with local Thailand partners within six months of engaging PEO services of Smart Search Recruitment. PEOs not only offer cost-effective, efficient and less time-consuming HR functions. They also provide legal and statutory expertise ideal for compliance requirements.
New and small businesses normally do not possess such capabilities on its own.
Big corporations, including those belonging to the Fortune 500, may also benefit from a Global PEO. This is especially true in situations where the company is expanding its business across countries. No matter how well-funded an organization is, the costs of establishing HR infrastructure in Thailand may be too high, and Smart Search helps mitigate the need for such spending.
It is best to closely consider the PEO that will give you the best value for your money. At the same time ensure high-quality, efficient, and accurate services according to your actual needs.
Brief History of PEO
PEOs started out as entities that provided payroll processing services to client companies in the 1980s. in the United States. Prior to its proliferation, HR management is simple and straightforward. Handling it is pain-free for small and medium-sized businesses.
However, labor and employee issues emerged during the period. As a result, governments enforced a number of HR and employment laws. In fact, there was a two-thirds increase in relevant labor laws at the time.
This made HR and administrative matters time-consuming and complex.
HR managers needed to have the necessary expertise and skills to be able to run the department successfully. Small companies and startups are unable to afford the cost involved and lacked the required expertise.
This is when the outsourcing of administrative and HR work became prevalent.
PEOs Emerged as the Solution
Statistics showed that without a PEO, business owners spend 25% of their time solely on employment paperwork. US companies, as one example, also spend significantly on compliance. The figures are US$6,795/employee/year and US$5,000/employee/year, respectively.
The PEOs became the less costly and efficient solution to the intricate employment and labor laws that confronted small businesses.
PEOs also minimized the legal liabilities and responsibilities that companies handled before.
The growth of the PEOs has been considerable over the last two decades. PEO will grow more given that more companies prefer to partner with PEOs, especially when expanding abroad to countries like Thailand.
Smart Search Recruitment is Bangkok's leading executive recruitment consultancy. We serve multinational and local companies, sourcing high-caliber candidates and placing them in mid and senior-level roles. For recruitment inquiries contact us. If you are looking for a new job please drop your CV. We are committed to meet our client’s needs by delivering an exceptional level of service. We have insightful HR resources updated everyday. Please keep in touch with us via our social media.