Maximizing Business Growth in India with PEOs as Strategic HR Partners

Multinational entities can leverage the expertise and resources of PEOs in India to streamline their HR operations, ensure employment law compliance, access enhanced benefits packages, and prioritize growth and innovation.

For businesses looking to optimize their operations, reduce risk, and gain access to a wide range of HR services, partnering with a Professional Employer Organization (PEO) is an attractive proposition.

By leveraging the expertise and resources of a PEO, businesses can streamline their operations, ensure compliance with employment laws, access better benefits packages, and focus on growth and innovation.

As organizations strive for success, partnering with a PEO can be a game-changer, helping them navigate the complexities of workforce management with confidence and ease.

What is a PEO?

A PEO is a specialized entity that establishes a collaborative employment arrangement with an employer, offering the lease of employees to fulfill various responsibilities and liabilities related to human resources.

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This strategic partnership enables employers to outsource critical HR functions, including employee benefits, compensation and payroll administration, workers’ compensation, and employment taxes, effectively managing these aspects.

In essence, PEOs act as professional employers for the employees of their client companies. The client organization reports its employees’ wages using the PEO’s federal employer identification number (FEIN), resulting in a transfer of employee liability to the PEO.

This arrangement provides significant advantages to employers, as they can access a broader range of benefits options, often at more cost-effective rates due to the economies of scale achieved.

How does PEO services work?

When a client company engages a PEO, the PEO assumes responsibility for hiring the employee and adds them to its own payroll. Once onboarded, the employee becomes the “Employer on Record (EOR)” for the PEO.

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Consequently, the employee receives key performance indicators (KPIs) from the client company on a daily basis but operates under the HR guidelines set by the PEO. The PEO manages essential tasks, such as payroll and compliance for the employee, allowing the client company to concentrate on meeting its business requirements.

The extent of HR functions outsourced to a PEO can vary depending on the specific agreement and the PEO’s offerings. Alternatively, for companies seeking outsourcing benefits without co-employment, an administrative services outsourcing (ASO) agreement provides suitable options.

By leveraging the services of a PEO or entering into an ASO agreement, businesses can streamline their HR operations, enhance efficiency, and mitigate risks associated with employee-related obligations.

These arrangements empower companies to focus on their core competencies while entrusting HR functions to specialized professionals, leading to improved overall performance and sustained growth.

Krishan Aggarwal, Senior Manager, International Business Advisory at Dezan Shira & Associates, notes:

The arrangement of Employer of Record (EOR) provides a cost-effective and efficient method for foreign entities to conduct market research activities without the need to establish their own entity, which can be a costly and time-consuming process. The benefits of the EOR arrangement are as follows: it allows for easy and immediate initiation (with minimal time to market, similar to recruiting someone), eliminates the need for significant setup costs (requiring only one-time employee onboarding fees), does not burden the entity with additional compliances (as routine compliances like social security contributions and withholding taxes are handled), and facilitates an uncomplicated exit with minimal additional compliances. Furthermore, the management or control remains with the principal employer, enabling efficient staff management in India.

Scope of a PEO in India: What they can and cannot do for your organization

Entrusting a PEO with certain HR responsibilities is a significant decision for any multinational entity. It is natural to have concerns about the level of control the PEO may exert in the local market.

A PEO can do the following:

• Assist with hiring and onboarding: A PEO can play a crucial role in the hiring and onboarding process by providing expertise and support. They can help identify and recruit talented individuals, streamlining the overall process for your organization.
• Mitigating risk and ensuring compliance: India has specific labor laws and regulations that organizations must adhere to. PEOs offer valuable assistance in drafting comprehensive employee handbooks, developing workplace policies, managing employee relations, and maintaining proper documentation. By collaborating with a PEO, businesses can significantly reduce the risk of lawsuits, penalties, and legal disputes, fostering an environment of compliance and harmony in the workplace.
• Ensure proper payroll management and processing: One of the primary functions of a PEO is to efficiently manage and process payroll for your employees. They take care of accurate salary calculations and ensure taxes are filed correctly, alleviating the burden on your organization.
• Enhanced efficiency and time savings: Partnering with a PEO allows businesses to streamline HR and administrative processes, including payroll, benefits administration, employee onboarding, and tax management. By entrusting these tasks to experts, businesses can ensure accuracy, efficiency, and compliance, freeing up time and resources to focus on core operations.
• Access to expertise and resources: PEOs bring extensive HR expertise and resources to the table. PEOs also offer access to advanced HR technologies, improving efficiency and the employee experience.
• Cost savings and improved benefits: By pooling employees from multiple client companies, PEOs negotiate better rates for services like health insurance, retirement plans, and workers’ compensation insurance. This enables businesses to provide competitive benefit packages without incurring excessive costs. PEOs also handle the time-consuming process of researching, selecting, and administering employee benefit programs, saving internal resources.
• Scalability and flexibility: PEOs offer scalability and flexibility to adapt to businesses’ changing needs. Whether it’s accommodating employee growth, expanding into new regions, or implementing new HR policies, PEOs have the infrastructure and expertise to support seamless transitions. This allows businesses to focus on strategic goals and core operations without being overwhelmed by administrative challenges.

A PEO cannot do the following in India:

• Serve as the sole legal employer: It’s important to note that a PEO does not replace your organization as the legal employer. Instead, they establish a co-employment relationship, sharing certain HR responsibilities while maintaining the ultimate legal employer status with your organization.
• Take full control of your organization: While a PEO offers valuable HR support, they do not assume complete control over your organization’s operations. The decision-making authority and overall management of your organization remain in your hands.
• Be solely responsible for hiring and firing employees: Although a PEO can assist with the hiring process, the final decision to hire or terminate employees rests with your organization. The PEO’s role is to provide guidance and expertise, ensuring compliance throughout the process.

Various businesses, regardless of their size, can benefit from partnering with a PEO in India. While small and mid-sized businesses are commonly associated with PEO arrangements, larger organizations can also find value in their services. PEOs cater to a wide range of industries, including, but not limited to:

• Real estate and property management
• Computer services and technology
• Securities brokers and dealers
• Engineering services
• Health services
• Legal services
• Management consulting services
• Business services
• Accounting, auditing, and bookkeeping
• Manufacturing
• Insurance
• Wholesale
• Non-profits

(This article was originally published on June 30, 2023 and last updated on July 3, 2023.)

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