By Bella Khan – Associate Director HR Outsourcing, Links International Hong Kong
Companies that are looking to expand their presence in Asia will often need to recruit a specific person with certain skillsets. Without a registered or established company in that local country, it is, however, often hard to hire employees. In these situations, companies can look at the option of a secondment – i.e. outsourcing the employment of an individual to another company. In some countries this employment model can be referred to as co-employment, dispatch employment, or PEO (Professional Employer Organisation).
There are huge benefits for companies to use this model of employment, whilst they decide if the establishment of a legal entity is required. Often, setting up a company may take months, depending on the country in which they are trying to establish their company. In this case, employment services can still be rendered to these companies through this model, since it creates the option for companies to operate and expand during the set up or transitional stages.
The benefits of Secondment/PEO include:
- When a company uses this model of employment, the client company becomes the employer of record for pension, tax and insurance purposes. After the co-employment/PEO services are engaged, the employee will be on-boarded and seconded back to the client without tremendous human resource or administrative efforts.
- One important aspect is the arrangement and approval of visas. If you are sending a foreign national into a market, a local company must be the “sponsor” for that work permit, since foreign companies cannot sponsor work permits. Without the work permit, the foreign national does not have the right to work in that country. Therefore, it’s imperative this arrangement is made in compliance with the country’s employment law.
- The management of tasks such as employee benefits relating to health, pension, workers’ compensation, payroll calculation and salary payment can all be shifted to the PEO firm. As employees and employers must pay into the local country’s social security, only PEOs would be able to register and remit these payments to the authorities.
- One of the most important benefits is that co-employment/PEO is able to provide secure workers’ compensation insurance coverage at a lower cost than client companies can obtain on an individual basis. Essentially, a PEO obtains workers' compensation coverage for its clients by negotiating insurance coverage that covers not just the PEO. This is allowed because, legally, the PEO is the employer of the workers at the client company. PEOs can also offer basic levels of background and reference checks if needed.
- The PEO firm will charge a service fee for taking over the human resources and payroll functions of the client company. Typically, this is from 5 to 15% of total gross payroll. This fee is in addition to the normal employee overhead costs, such as the employer's share of pension or any taxation or medical care required. However, with this said, the cost of workers’ compensation and health insurance coverage will usually be cheaper, given it's under the PEO's arrangement, as opposed to having the coverage through their own company.
The benefits of this arrangement will save a lot of time, reduce legal liabilities or obligations of the overseas companies. In addition, the client company may also be able to offer a better overall package of benefits, and thus attract more skilled employees. This co-employment model is therefore attractive to small and mid-sized businesses and associations.
Links International offers secondment/PEO services. Please contact us for more information.