Summary
International PEO ROI involves pricing models like flat fees, percentage of payroll, per-employee-per-month fees, etc. It is influenced by company size, location, and industry. Calculate the PEO costs wisely to choose the right PEO partner. This will help you to maximize the international PEO ROI.
While building an international team remotely, a million questions can trigger your mind. It’s no layman’s job to hire talent remotely plus manage them efficiently. That is why the birth of the international PEO. We have a content avalanche going on on our website about it. However, what is the International PEO ROI, and is it really worth it?
Now this question might be frequently lurking in your mind. The answers that you got? Spiraling in the curve with non-definitive statistics and solutions. Hence, we have curated this blog to provide the right direction to all the questions in your mind.
We distinctively talk about the costs associated with international PEO and portray the international PEO ROI through this blog. We also jot down the steps of how to calculate the international PEO ROI. So, why wait? Let’s get those answers loud and clear!
What Are the Benefits of Using an International PEO?
Growing your business globally is all hunky-dory until you hit a wall of bureaucracy. An international PEO removes all the possible roadblocks coming your way. Plus it provides you some added benefits that leave you ecstatic. Here’s how:
Compliant Onboarding and Offboarding
- Hiring and offboarding in a foreign country isn’t as simple as sending an offer letter or a termination email.
- An international PEO ensures every hire and exit follows local labor laws, severance requirements, and notice period requirements.
Tax Withholdings
- You might need an aspirin or two extra while handling payroll taxes in another country.
- An international PEO calculates, withholds, and remits payroll taxes on your behalf.
Medical and Life Insurance
- Some countries require employer-sponsored medical insurance, while others don’t.
- An international PEO ensures your employees get the benefits they need while keeping costs predictable.
Non-Compliance Penalties
- Did you know non-compliance can cost you thousands, or even millions?
- An international PEO helps minimize these risks. This is why small businesses that partner with an international PEO are 16% more likely to survive their first five years than those that do not. (Source: US Small Business Administration)
Ability to Hire the Best Candidates
- An International PEO opens a treasure trove of skilled professionals in a foreign country.
- Here you go, hire the best people from wherever you want to without the need to set up entities.
Operational Cost Savings
- The natural instinct to start operating in a new market is to set up an entity in that country.
- However, setting up a foreign entity comes with legal fees, office space, and compliance costs.
- An international PEO eliminates these costs, allowing you to enter new markets with minimal investment.
International Payroll Solutions
- Different currencies, banking laws, and payroll cycles. Sounds like a nightmare, right?
- An international PEO handles the excruciating payroll process. It ensures that your employees are paid accurately and on time.
Easy Scalability
- An international PEO helps scale your team up or down quickly in the new market.
- Need to offboard five people today and hire two in the next month? No problem.
- Studies from NAPEO have indicated that businesses working with international PEOs grow 7-9% faster than others.
Get the entire list of International PEO Benefits here.
What Are the Costs Associated with an International PEO?
Before you sign up for a PEO, let’s talk about the cost of PEO services. Understanding international PEO pricing models guarantees there are no surprises down the road. It also helps you plan your budget accordingly and efficiently.
How Does International PEO Pricing Work?
The international PEO pricing model doesn’t follow a cookie-cutter approach. It varies based on workforce size, location, and service scope. Most PEOs follow three common models. We’re going to learn about these individual models later in this section. Some providers bundle services, while others charge separately for benefits, compliance, and admin support. What might be the possible hidden fees?
Always check for onboarding, offboarding, or tax-related costs. Need unbounded flexibility? Some international PEOs offer custom pricing for large teams. The best approach you ask? Compare models, evaluate total costs, and choose what fits your business. A well-structured international PEO plan saves your time and money simultaneously offering you the maximum ROI.
A Flat Fee
Some international PEOs charge a fixed monthly or annual fee per employee. Flat fees do offer predictable costs making budgeting simple.
A Percentage of Payroll
Here, the international PEO pricing model is payroll-based. Meaning which, the pricing scales with salaries. To elaborate, the international PEO takes a percentage (typically 2–12%) {Source: NAPEO} of your total payroll, which scales as you grow.
Per-Employee Fees
In this type of model, international PEOs charge per employee per month. The cost of PEO services in this model usually ranges from $200 to $1,500 per employee. (Source: People Managing People). However, it also depends on the country and the services included.
What Fees Do You Pay When Using an International PEO?
Beyond base pricing, there are additional costs of PEO services that you should be aware of. Let’s discuss them.
Average Cost Range
The average cost of PEO services per employee by default covers all the main services provided by an international PEO. This typically involves payroll, compliance, benefits administration, and HR support. Some providers offer additional customized services and adjust the PEO price accordingly.
Hidden Fees and Additional Charges
The PEO pricing model also involves a percentage of additional and hidden fees. These costs are not covered under the base pricing. These costs comprise of administrative fees, setup costs, or extra charges for compliance services. It’s always good to ask for a detailed PEO price breakdown.
Read our blog to know the cost of hiring remote employees in India.
What Are the Factors Influencing PEO Costs?
Apart from the costs discussed above, there are other factors that come into the picture as well. And they can be more complicated than you think. So, let’s see the elements influencing your final PEO price.
Company Size
Larger teams often get volume discounts. Smaller companies may pay slightly higher rates per employee.
Industry
Regulated industries such as healthcare, IT, and finance often have higher compliance costs. This in turn increases the final PEO price. Higher demand for specific industries may also spike the costs of PEO services.
Location
Countries with complex labor laws or high employer taxes tend to have higher costs of PEO services.
Specific Services Required
Basic HR services cost less. The more you add customization to the list, the more you add to the total PEO price.
Our blog might be a useful resource to make a cost comparison between other related hiring models.
How Do International PEOs Generate ROI for Businesses?
A good investment should yield strong returns. Here’s how an International PEO delivers measurable ROI.
- Better Talent at Affordable Cost: International PEOs help you hire the best talent in foreign locations. Plus the real catch is they often do so at a lower cost than hiring locally.
Read through our blog to know how PEOs add the right talent at a reduced cost.
- Better Employee Retention: Competitive benefits, timely payments, and employee well-being activities keep employees happy and engaged. Some international PEOs also support skill development programs for employees. This pushes the motivation within the employees, thus accelerating employee retention rates. A study from SHRM reveals that businesses using international PEO witnessed 10-14% lower employee turnover rates.
- HR Personnel Costs: Instead of building an expensive HR team, you can outsource HR functions to an international PEO. This will reduce overhead costs.
- Increased HR Efficiency: An international PEO gracefully simplifies end-to-end employee lifecycle processes. This frees you up from your regular HR duties and helps you focus on revenue generation.
Read why India is the best destination for optimized cost-per-hire
How to Calculate the ROI of an International PEO?
Now that we have discussed the factors revolving around international PEO ROI, let’s move on to the implementation part. A.k.a. how to calculate it. This section covers all the crucial pointers that will make you self-sufficient enough to choose the right international PEO. Let the math begin!
Step 1: Calculate HR Cost Savings
Compare the total cost of managing an in-house HR team with the international PEO pricing model. Don’t forget the hidden costs associated with an international PEO. Costs like recruitment fees, onboarding, and training. If the international PEO pricing model gives you better efficiency at a lower cost, you’re already gaining ROI. I’m not even getting into the monetary savings. The numbers will speak for themselves.
Step 2: Quantify Compliance Cost Avoidance
You can only estimate the costs associated with external consultants and in-house legal teams. The resources you will definitely require without international PEO support. You may even have to go through over-priced trial-and-error runs. The other factors that can pile up? Potential fines for non-compliance, legal disputes, and payroll miscalculations. An international PEO absorbs these compliance risks, saving you a fortune. Did you know that businesses using international PEOs are 50% less likely to face compliance-related penalties? (Source: PWC Global Risk Survey, 2023). Oh, the temptation!
Step 3: Assess Productivity Gains
Stating a very common, yet a very significant phrase, “Time is money”. Hence, calculate the hours saved while using an international PEO. Plus, the hours reinvested into core operations. Consider your remote team hired and handled without you being dragged along in the process. Can you fathom the increased productivity and profitability in your business? We have the right statistics to help you with the estimation. Reports from PEO clients state a straight 15% increase in productivity due to reduced administrative burdens. Isn’t that something?
Step 4: Evaluate Employee Retention and Engagement
Do you know why an international PEO is the current favorite for businesses? Because it makes employees feel valued and secure. This increases employee loyalty towards your company. And, lower turnover means reduced hiring, onboarding, and training costs. Plus, a stable workforce leads to stronger teams, improved collaboration, and higher performance levels.
Step 5: Consider Long-Term Growth Impact
If I had to define international PEO in one sentence, how would I do it? Your friendly HR partner who builds top-notch international remote teams with minimal risks. Plus, the already discussed added perks and benefits. Isn’t that smart investing, even for the long term?
Maximizing ROI from PEO Services
To get the best International PEO ROI, you must choose wisely and follow the above-mentioned steps. Assess service value along with the average PEO cost per employee. The kind of partnership you have with your international PEO might make or break the budget for your team.
Selecting the Right PEO
Not all international PEOs are created equal. The focus point on services is different for different international PEOs. Identify your priorities before shortlisting a partner. Compare different PEO pricing models, contract flexibility, and customer service responsiveness. Check client reviews and industry reputation. A reliable international PEO should align with your business needs and budget, ensuring maximum ROI.
Negotiating PEO Contracts
A strong contract protects your business from hidden fees and rigid terms. Look for transparent pricing, clear service scope, and flexible exit clauses. Ensure there are no surprise costs for additional HR support. Ask about service guarantees and response times. The right terms prevent financial strain and any future misunderstanding with your PEO partner.
Conclusion
As we come to the end of this blog, I wish to provide yet another statistic. As of today, the ROI on PEOs is 27%. The approximate average PEO cost per employee saved is $1,775 (Source: NAPEO). Can you see the potential here? So, all I request you to do is to tally all the factors associated with the PEO pricing model cumulatively.
Get to the heart of the matter and evaluate each individual element carefully. The process might test your patience but it will lead to the maximum international PEO ROI you can ever achieve. We’ve represented a small portion of the process through a bar graph.
It might help you get kick-started with the process. And if you are facing frequent hiccups along the process, let us help you. Our team of experts is sitting right here to assist and guide you throughout.
