Why you should never use a PEO to expand internationally

Expanding a business internationally is a significant undertaking that requires careful consideration and strategic planning. Some may opt for the convenience of using a Professional Employment Organisation (PEO). But doing so in the hope of a quick and easy expansion is a dangerous choice.

Brace yourself as we reveal why relying on a PEO can be a grave mistake when expanding your business globally.

You’ll struggle to find the best people

Don’t be fooled by the promises of a PEO. Choosing this route often means settling for subpar talent that will hinder your business growth. 

Finding talent in your home market is hard enough, but finding candidates with the right skill set who share your company culture overseas is exceptionally challenging. And PEOs lack the expertise and local insights required to identify top performers in foreign markets.

By entrusting your hiring to a PEO, you're gambling with your business's future, compromising on your team's calibre, and setting yourself up for a downward spiral of mediocrity.

And fail to retain them

In the quest for business expansion, finding and retaining exceptional talent is paramount. Employees who share the company’s mission and vision are the lifeblood of success.

But when relying on a PEO for international expansion, retaining talent becomes an uphill battle, fraught with challenges and detrimental outcomes.

To retain talent, it is crucial for companies to prioritise the wellbeing and satisfaction of their employees, promptly address administrative queries, and deliver an outstanding employee experience. Neglecting these aspects can significantly hinder a business’s success.

If your strategy involves setting up your own foreign entity with an HR department, you have more control over the employee experience. However, if you opt for a PEO, managing HR and employee support remotely across different countries and time zones becomes cumbersome and ineffective.

Failure to provide employees with the experience they deserve not only leads to high turnover rates and demotivated employees but also risks damaging your company’s reputation. To safeguard talent and ensure long-term success, businesses must prioritise the wellbeing of their employees and establish a supportive work environment, either through setting up their own foreign entity or exploring alternative solutions that prioritise the employee experience. 

By choosing to partner with a PEO, you should also brace yourself for a disastrous loss of continuity of employment the employees will expect. When the time comes to open your own entity, you’ll want to transfer your employees from the PEO. However, the co-employment model used by PEOs means there cannot be continuity of employment, resulting in employees losing all of their accrued legal rights. 

And if employees are unaware of the continuity of employment when they are hired, they will undoubtedly notice its absence when it is lost. This is likely to cause dissatisfaction among employees, or in the worst case, lead to high turnover rates.

By surrendering control over the co-employment relationship, you're relinquishing your best talent to the uncertainties of the PEO abyss, leaving your business in a constant state of chaos.

You’ll expose your business to liabilities

Partner with a PEO to expand internationally, and you subject your company to potential lawsuits in a foreign jurisdiction. 

Under the co-employment model, your company assumes full legal responsibility for your employees. You are legally liable under foreign law in foreign legal jurisdictions and subject to foreign courts of law in foreign languages. It’s a headache waiting to happen.

Imagine the mayhem when an employee abroad raises a grievance. Your company becomes the prime target under that country's law. But here's the kicker: your lawyers are likely clueless about the foreign legal system, maybe even unable to speak the language.

Your company could also find itself held accountable for both civil and criminal offences committed by your employees. One wrong move, one altercation with a client or another member of staff, and you're liable. The co-employment contract fails to shield you from the legal repercussions of your employees' actions overseas.

But hold on because dealing with a lawsuit abroad is just the tip of the legal iceberg. Ignoring overseas regulations is a ticking time bomb ready to detonate. Neglecting critical areas such as employment law, corporate law, privacy law, and taxation invites a cataclysmic fate - staggering fines and court fees that can obliterate your business. And remember, these regulations change frequently, always poised to catch you off guard.

Think twice before embarking on this perilous journey. The consequences could be your company's undoing.

And wave goodbye to your IP

Your intellectual property (IP) is undeniably your biggest asset. It generates your revenue and most of your value.

But when you partner with a PEO, you enter into a co-employment relationship where legal responsibilities are shared. And this arrangement has the potential to compromise your IP rights and ownership.

Losing control over your IP is inescapably ruinous. It exposes your invaluable software products themselves, your proprietary information, innovative ideas, trade secrets, and technological advancements. The PEO's involvement in your workforce may create situations where they could claim some form of ownership or control over your IP, leading to disputes or limitations on its use.

Expanding internationally is an exciting prospect, but safeguarding your IP should be a top priority. Don't overlook the potential risks that come with a PEO arrangement.

Conclusion

International expansion can come with truly monumental rewards. But the drawbacks and risks associated with relying on a PEO are substantial. From compromising the quality of your team to struggling with employee retention and losing your local team’s continuity of employment, the potential pitfalls are numerous. In addition, subjecting your company to potential lawsuits in foreign jurisdictions under foreign law and the risk of losing control over your valuable IP further emphasise the dangers of the PEO route.

The good news? An alternative model exists. One that removes all of the risks associated with PEOs. One where the overseas employees are held in trust exclusively for you. Standing between you and the perils of foreign law. A unique model where you are protected from legal proceedings and your IP is safeguarded. One that guarantees your team’s continuity of employment when they join your new local corporation.

Expanding globally is an exciting opportunity, but it demands careful planning, thorough understanding, and a proactive approach. By avoiding the pitfalls associated with using a PEO, businesses can navigate the complexities of international expansion with confidence and maximise their chances of long-term success.