Advantages When You Use a PEO
PEO stands for Professional Employment Organization, and it wants to make business processes simple for foreign entities that go for a labour dispatch model to help them hire staff. Foreign companies usually find China labour laws complex, and it consumes time. It is especially true for WFOEs; the development of this requires many formalities and paperwork.
If you are doing business in China, the foreign companies are already working with local distributors, so their business operations are manageable. In case an international company must directly look for staff in China, the distributor will stop.
Hiring Employees Even Without a Legal Entity
For companies that do not have any legal entity in China, but is looking to hire employees for their local operations, PEO services are beneficial. The companies with no legal entity cannot do direct hiring legally. These companies employ local employees by using an HR outsourcing company.
There is a Psychological Advantage
It is only a PEO can offer employment on behalf of a foreign-owned company. Therefore, the person can directly sign his/her labour contract with their home organization. It creates a link instantly between the employee who is based in China and the company.
Furthermore, a foreign company shows professionalism if they collaborate with one of the top PEOs, which makes it easier to hire the most talented employees.
Having a direct employment relationship helps the employees gain a sense of belonging to the organization. They are not an external contractor with an employment agreement with their business partner. It ensures a long-term commitment to work in actual seniority with the company.
Better Service to Employees
The small or start-up companies have one HR person or a small HR team, which makes it challenging to provide excellent employee service. The turnover of HR person influences the monthly payroll of employees and processing of statutory benefits. It isn’t easy to offer employees the same level of flexibility and service that is provided by the HR outsourcing company in the same kind of service and flexibility that an HR outsourcing company can offer in the processing of HR transactions. HR companies can answer employee questions regarding the most recent laws/benefits and give the best guidance.
Requirements for Paying Taxes
- Social Security – This must be paid for the local workforce of China. However, foreign employees do not need to give a contribution. A PEO can offer overseas employees’ medical insurance if it is part of their policy.
- Income Tax – The PEO company must pay this using their withholding tax. However, the rules differ for the local and overseas employees of China when it comes to paying income taxes.
PEO services take out a lot of risks and lessen the overall cost for a foreign-owned company. They can use labour dispatch services through the help of a PEO company because it provides reassurance for a foreign entity when they enter the business market in China, especially if it lacks a legal business entity. Continuing to use PEO services is generally helpful until the business can be launched as a WFOE.
Choosing to work with a PEO instead of a distributor in employing staff is an implication of working with an HR company. That is why the administrative tasks like employment contracts, possible terminations and payroll are to be outsourced. Also, if the foreign company and distributor has discrepancies, the employee will suffer. It affects the quality of their work in a foreign company.
If you want to set up a business in China, choose to work with a PEO company.