Transforming from a small tech startup to a global software leader is a significant milestone for any business. However, SaaS companies, specifically in the legal software industry, face unique challenges overseas—like legal and compliance hurdles, IP (intellectual property) protection, data storage laws, and market-specific employment laws.
Companies that handle highly sensitive information need an employment solution that not only ensures compliance, but also accelerates time-to-market, reduces costs, and enables you to test product-market fit without a long-term commitment to a new country. As you develop a successful global expansion strategy, you must choose a hiring model that meets all of these requirements.
International PEO (Professional Employer Organization), also known as an Employer of Record (EOR), provides companies with a quick and compliant hiring solution, virtually anywhere in the world. With this expansion strategy, your International PEO partner handles all payroll, benefits, compliance, and risk mitigation while you maintain full day-to-day control of your global workforce.
For legal software companies, International PEO offers many benefits, including:
- Employment contracts that meet all in-country legal requirements with language around IP protection, ownership, and autonomy
- Up to 60% more cost-effective than establishing a foreign legal entity
- Onboard employees—from a security engineer to a director of data science—in new markets in a matter of days, as opposed to months with foreign entity establishment
- Easily exit any market, if needed, without additional teardown fees or time commitments
Global business leaders increasingly leverage International PEO as a proven, streamlined global hiring option. NelsonHall’s recent report discusses the growing need for International PEO services and expects the global Employer of Record services market to grow by approximately 28.4% CAAGR (Compounded Average Annual Growth Rate), reaching $1.1 billion by 2024. This dramatic growth and need for International PEO is a key indicator that, even if you are not leveraging an International PEO for global hiring, your competitors are.
Five Common Misconceptions About International PEO
Although you may have heard of International PEO, there are misconceptions about how the service works. The right International PEO partner is critical to maintaining your competitive edge in global markets while mitigating risk, so there is no better time to reevaluate your global hiring strategy.
Here is a breakdown of the top five common misconceptions surrounding this global expansion solution and what to expect when exploring your global growth options.
1. It’s similar to using a staffing firm or outsourcing
International PEO is not the same as a staffing firm or temp agency, and it is not the same as outsourcing. While your International PEO partner becomes your supported employee’s legal Employer of Record, you maintain full control over hiring decisions, salary, benefits, day-to-day activities, terminations, promotions, and more. Unlike software development outsourcing where contractors are commoditized and not fully invested in your company or product, International PEO allows you to fully integrate your hires so they become part of your team.
Some International PEO firms go further to provide expert guidance as you hire in new markets that staffing firms or other employment agencies do not provide. Your International PEO partner helps you manage obstacles that global companies face, such as staying up to date on employment laws and regulations or running payroll for employees in different time zones and currencies.
2. It’s not right for my company
International PEO is ideal for companies that want to hire quickly, maintain flexibility, and reduce operating complexity. Companies of all sizes and in every growth stage find success with International PEO, from small startups with only a few employees to Fortune 500 giants. This solution is flexible enough to handle varying employment terms, from short-term contracts to permanent hires. The right International PEO partner does not lock you into minimum contract terms, which allows you to remain agile without incurring early termination fees or delaying your exit from an international market.
International PEO is a legitimate legal relationship that thousands of SaaS companies around the globe use to employ a talented and diverse workforce.
3. It’s more difficult and time-consuming to use than foreign independent contractors
Hiring independent contractors abroad is often seen as an easy and efficient way to hire around the world. However, there are corporate and labor compliance risks that your company must be aware of before proceeding. For each potential market you plan to hire in, your company must take the time upfront to research the country-specific independent contractor/employee regulations and potential tax consequences of hiring. If companies misclassify workers as independent contractors when they meet the definition of an employee under the regulations, your company faces serious fines and penalties.
Penalties for misclassification are as high as $350,000. In specific scenarios, employment authorities may recommend imprisonment for company leaders. Beyond fines, employers may face lawsuits from misclassified contractors who seek reimbursement for benefits that they would have earned had they been correctly classified as employees initially.
Using International PEO mitigates the risks of independent contractor noncompliance and allows you to onboard new workers in as little as 48 hours. With this solution, experts guide you to ensure your workforce is compliant with local labor laws and regulations at all times, even if you have workers in multiple countries. This hiring method also provides employment contracts with intellectual property and non-compete protections that contractor agreements often do not cover in-depth.
4. It’s more expensive than setting up an entity
International PEO is up to 60 percent more cost-effective than establishing a foreign legal entity. Businesses need to budget at least $15,000 to $20,000 to get a legal entity up and running in most overseas markets. In addition to this upfront investment, legal entities generate ongoing hard and softs costs, averaging $200,000 in annual maintenance costs to support the entity that adds to your bottom line.
If the market doesn’t pan out as expected, or you need to wind down operations, tear down costs of a legal entity are expensive and time-consuming. Dissolving an entity typically takes three times longer and costs three times as much as the amount required to establish the entity.
If you’re looking to hire one or two software engineers in a new market, International PEO is a cost-effective, flexible alternative to entity establishment that will support your long-term growth.
5. It’s difficult to retain talent and uphold company culture without your own entity
The right International PEO partner works hard to help your company onboard and retain top talent. By onboarding quickly, customizing employment contracts, and ensuring both you and your global workforce have an exceptional experience and support, your supported employees feel like a fully integrated member of your team.
The Right Partner Makes All The Difference
Expanding overseas is no small task, especially today. The COVID-19 pandemic created an uncertain global economy that persists. Leveraging a strategic partner in your global expansion strategy that minimizes the inherent risks of hiring and managing an international workforce is more important than ever –and keeps your investors happy.
As your company considers International PEO, it is critical to understand that not every provider offers the same level of service and support. The right International PEO partner not only mitigates risks, but also provides in-country expertise, and on-going, exceptional service and support that growing companies need for success. With International PEO, high-growth SaaS companies have a unique opportunity to quickly establish a presence in new countries, gain market share, tap into new revenue streams, and stay a step ahead of the competition.
