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What is a PEO? Risks and Benefits of Using PEO Services 

COO Alcor
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Experienced operational manager with strong legal background. Focus on launching back-office processes for foreign software R&D centers in Ukraine.
08 September 2021
4 min

Some business leaders successfully extend their staff or even hire software engineers abroad via such solutions as the Alcor model. But other CEOs fail to delegate development to overseas IT specialists because of a lack of back-office support and increased costs that an improper team extension process might entail.  

 

If you can relate to the latter case, you’re not alone. That is why companies hire PEOs to deliver services like human resources, accounting, payroll, and others. Furthermore, this solution is also cost-efficient. So, what is a PEO company and how does a PEO work? In this article, you can find answers to all these questions, as well as learn about what business leaders choose instead of PEO services and why. 

 

What is a PEO Company? 

 

PEO means Professional Employer Organization company. It’s a provider of operational and support services for developers at SMEs and growing businesses. These vendors complete HR functions, process taxes and payroll, and provide benefits for programmers. PEOs offer their services to such industries as information, arts, aviation, retail, and many others.

 

How Does a PEO Work? 

 

To use the professional employer services, you must enter a co-employment relationship with your vendor. This means that your PEO provider will become a “second employer” or an employer of record to your software team (and share liability with you). However, such a company will neither hold employment agreements with your developers nor take part in the decision-making of any kind. 

 

To put it succinctly, once you’ve hired an in-house or remote engineer, you won’t have to worry about salaries, taxes, document workflow, financial planning, invoices, auditing, and so on. Also, you will save on health insurance and retirement plans since professional employer companies negotiate lower prices for these and other benefits. 

 

 

Benefits of Using PEO Services 

 

 

In a nutshell, cooperating with a PEO expert sounds good. But what will you get after signing the contract with such an agency? 

 

  • Your company will access enterprise-level benefits

 

If you’re a small/medium-sized company or a fast-growing startup, you may not be able to provide insurance or other perks to experienced developers yet. To solve this issue now, you might hire a PEO vendor who will supply your IT staff with perks like health insurance, life insurance, disability insurance, or retirement plans – and at lower prices. 

 

  • You will save considerable funds

 

Many CEOs in the United States and other countries still hire several firms to do back-office functions. However, working with a PEO provider is cheaper than performing administrative tasks in-house and more beneficial than hiring separate vendors for each project. It’s just that professional organizations have the same flat fees and often make discounts for clients who use all their services. 

 

  • PEO stands for security

 

As it was mentioned before, you will share liability with your PEO partner and receive more legal protection. If your employer organization partner is qualified to provide legal assistance, they will always be aware of changes in employment laws and apply them in your IT company. 

 

  • You’re free to use PEO services even for your coders abroad

 

If you thought that back-office outsourcing is only possible in your country, I have good news for you. You can hire programming experts even in the most distant locations from your country and manage their work via an international or global employer organization that can legally hire foreign contractors in the country where this firm is registered. 

 

  • You will be able to focus on your core business

 

If you delegate operational functions to your PEO partner, you will free up lots of time to concentrate on the core business. Instead of looking for a health insurance provider, you will invest your resources in tech staff management. Not to mention, you will be focusing on lead generation and sales rather than spending several days a week to pay salaries and taxes for your engineering team.  

 

 

PEO Benefits

 

Are There Any Possible Risks? 

 

Despite the benefits of using a PEO, there are still disadvantages that you should be aware of. Let’s discover possible drawbacks of professional employer organization firms below: 

 

RISK #1: Your IT business may not comply with foreign laws.

 

Solution: Choose a vendor that can help you legally function abroad.

 

Although you enter a co-employment agreement with your PEO firm, this company may not be able to ensure the legality of your operations abroad. Therefore, you will have to register your legal entity in the offshoring country which presupposes the opening of your bank accounts, on-time salary payments for programmers, as well as preparation and submitting of tax returns on your own. 

 

RISK #2: Your company might suffer from hidden costs.

 

Solution: Cooperate with a provider that offers 100% transparent pricing and delivers detailed monthly invoices.

 

Some PEO providers may overcharge you for services you don’t even use. It also happens if you work with outsourcing and outstaffing vendors that don’t let you track down your finances.  

 

RISK #3: The quality of IT hiring, property management, and other back-office functions may fall behind.

 

Solution: Opt for a partner that specializes in IT recruitment and offers real estate support.

 

Few vendors include the recruitment of IT specialists as an additional service in their package. But the quality of such hiring might be below your expectations because the agency doesn’t normally focus on this activity. The same applies to real estate support. It means that if you need these services, you will have to provide them yourself and face unpredictable expenditures.  

 

RISK #4: You will not be able to promote your brand.

 

Solution: Work with a vendor that can promote your company in local social media and communities.

 

If you’re expanding into foreign markets via a PEO company, you’re likely to face offer rejections or poor responses from developers if you don’t promote your brand. Unfortunately, international PEO and GEO firms do not usually launch promotion campaigns for their clients.  

 

RISK #5: Your IP might be in danger if your PEO partner lacks IT law expertise.

 

Solution: Select a provider that has a proven track record working with IT companies.

 

PEO companies are known for providing admin support to all industries: from finance to the entertainment sector. Nonetheless, you may get poor compliance services, especially if you’re in the IT industry. This in turn may infringe your IP rights and expose your whole business to risk. 

 

 

Consider Alcor BPO as Your Trusted Outsourcing Partner 

 

When IT product companies decide to set up their R&D branches in Ukraine, they often reach out to Alcor, a BPO services provider. Our clients receive every essential back-office function they might need: IT recruitment, legal & compliance support, payroll & accounting services, real estate assistance, and other solutions.   

 

Sometimes, we even help our clients with specific tasks. For example, Luxoft is a tech company that creates digital strategies and provides development services to businesses in different parts of the world. When they were planning to purchase an IT company in Ukraine, they needed a vendor that specialized in IT law. Luxoft’s strategy team decided to seek help in Alcor. As a result, we did due diligence, spotted the main M&A risks, and prepared a purchase agreement, so our client successfully purchased the company. 

 

In comparison to PEO vendors, Alcor BPO company lets you access even the rarest tech skills in Ukraine, find and lease the top offices for your team, or set up home offices. In this way, we provide a seamless IT offshoring experience that PEOs can’t offer. All of this will help you successfully set up and operate your offshore development center. 

 

For example, a USA-based IP product company that develops a platform for B2B sales, People.ai, planned to offshore and create a development hub in Ukraine. Before they reached out to us, they worked with separate operational providers to set up an R&D center and failed. We helped them and created their office in Kyiv in 4 weeks. Apart from that, we hired 25+ IT talents in their new office and provided them with all other administrative support functions. 

 

How exactly are we different from a PEO company? 

 

Alcor vs. PEO

 

Final Thoughts 

 

Companies often cooperate with PEOs to receive proper operational support and supply their software engineers with important PEO benefits. Even though this solution offers security, cost savings, and other benefits, it could also expose you to IP rights threats, hidden costs, and even legal charges. 

 

To get the administrative job done and avoid all those drawbacks, business executives often look for alternative solutions to PEOs. One of them is the Alcor model which can not only load you up with back-office support, but also hire dedicated developers, give real estate assistance, and even promote your brand in Ukraine. 

 

Contact Us

We will provide you with statistical data regarding the number of developers in Ukraine and their average salaries. The discussion will proceed with the expected hiring deadlines and our recommendations on managing payroll, equipment procurement, and compliance matters.

We respect your privacy and will never share your data with any third party or spam you

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