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 HR services, as well as accounting, payroll, and other assistance. Furthermore, this solution is also cost-efficient. So, what is a PEO company and how does PEO for IT 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 presupposes that your PEO provider will become a “second employer” to your software team (and share liability with you). This firm will hire tech specialists and let you work with them via an employee leasing model which is basically “temporary lending” of developers.
Once you’ve hired a software engineer from a local or global talent pool through PEO, 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.
You should note that a PEO company will neither hold employment agreements with your developers nor take part in the decision-making of any kind, so you assume the role of their legal employer. That is why there’s an opinion that clients cannot completely operate under professional employer organizations and have to establish their legal entity or subsidiary abroad. Even though trustworthy PEO and finance companies use their own legal entities to work with clients, some business executives still doubt whether they should go for PEO or search for alternative solutions.
Benefits of Using PEO Services
In a nutshell, cooperating with a professional employer organization sounds good. But what advantages of PEO services will you get after signing the contract with such an agency?
1. 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.
2. You will save considerable funds.
Many CEOs in the United States and other countries hire several firms to do back-office functions which often turns out to be expensive and stressful. Instead, you may consider working with a professional employer organization in Poland, Romania, or other European countries. This is going to be less cost-consuming 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.
3. PEO stands for security.
As it was mentioned before, you will share liability with your PEO partner and receive more legal protection in your country. A professional employer organization partner must be qualified to provide legal assistance, comply with GDPR policies in case your company uses the information of EU data subjects, be aware of changes in employment laws, and apply them in your IT company.
4. 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.
5. 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.
Risks of Using PEO Services
Despite the benefits of using a PEO, there are still disadvantages of using a PEO solution 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 in overseas countries. This is a downside since you will have to register your legal entity in the offshoring country. It 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.
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. It means that if you need this service, you will have to provide it 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 yourself as an employer. 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.
PEO vs. EOR
An EOR or employer of record is a company that acts as the legal employer for your developers. This agency hires programmers in your team, puts them on its payroll service in Ukraine or the country of its registration, and manages other operational business activities: from HR functions to accounting. But in comparison to PEO, an employer of record neither requires you to enter into a co-employment agreement nor to open any legal presence in a foreign location.
Another difference between EOR and PEO services is that professional employer organizations don’t keep employment contracts of your developers, while EOR vendors hold these agreements.
Consider Alcor BPO as Your Trusted Partner
When IT product companies decide to hire remote developers in Eastern Europe, they often reach out to Alcor, a professional international recruitment services provider. Our clients receive every essential back-office function they might need: IT recruitment, legal & compliance support, payroll & accounting services, 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, our lawyers did due diligence, spotted the main M&A risks, and prepared a purchase agreement, so the client successfully purchased the company.
In comparison to PEO services, the Alcor solution lets you access even the rarest tech skills in Poland, Romania, and other Eastern European countries, participate in the hiring process, directly manage these IT specialists, and receive other assistance in one place. 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 IT 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+ talented team members in their new office and provided them with all other administrative support functions – from accounting to IT infrastructure management.
How exactly are we different from a PEO company?
Companies often cooperate with professional employer organizations to receive proper operational support and supply their software engineers with important PEO benefits. However, PEO services’ pros and cons must be also considered. It does offer security, cost savings, and other benefits but this solution could also expose you to IP rights threats, hidden costs, and even legal charges.
To get the administrative job done and avoid all those negative consequences, 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 employer brand in Eastern European countries, such as Poland, Romania, the Czech Republic, Hungary, and Slovakia.