Should You Use A PEO?
The use of PEOs is very common across the US and many PEOs have set up operations globally. However, employment law regulations vary widely across the globe - especially from US employment law regulations. What is legal in the US is, therefore, not necessarily accepted practice elsewhere.
Co-employment here is taken to be one where two employers have legal rights over and duties towards the same employee during the same hours. In other words, if an employee works for Company A from 9 am to 3 pm and for another one from 3 pm to 9 pm, then the two employers are not “co-employers”.
Let us look at just a few issues.
1. In France for example, the French Supreme Court (Cour de cassation) has continued to refuse to uphold decisions where co-employment is recognized. The cases involved a parent company and subsidiary and the Court held that co-employment did not exist where the subsidiary had autonomy and there was no clear interference from the parent company. Simply the parent company being involved in appointing and supervising certain senior staff and agreeing bonuses was not sufficient to establish co-employment. This position was reconfirmed in rulings on 24 May 2018.
If this is the case, it is difficult to see how in the case of (2) completely independent companies uninvolved in each others management, the French system would accept there was any co-employment.
France being part of the EU makes it likely that other EU courts would rule similarly.
2. Numerous countries have Collective Bargaining Agreements (CBAs) covering different industries. These include much of the EU, many parts of Latin America and countries such as Australia where these Agreements are called “Modern Awards”.
In such a situation, it is likely that the client company using the employee and the PEO would be governed by two different CBAs. Without being tested through the Courts it is difficult to know which CBA would prevail and in what circumstances.
To employ anyone without certainty of terms and conditions particularly in countries with onerous employment legislation is fraught with risk.
3. In the US, companies have faced numerous difficulties where a PEO terminated an employee or employees because the client company and the PEO had differences over (as an example) the timing of funding of the payroll expenses by the PEO. If a contract with a PEO is entered into, it is essential to agree every such detail unambiguously.
4. In addition, should the PEO fail to pay over payroll taxes, social security and pensions contributions, the local Revenue authority will hold the client company responsible for the payments. Because of the numerous occasions this had occurred, the US Internal Revenue Service (IRS) recently started a Voluntary Certification Program for PEOs. The point of the certification is that if the PEO fails to fulfill its obligations to the IRS, then if the client company has used an IRS Certified PEO, it (the client company) will not be held liable to the IRS for the PEOs failure to meet its obligations.
If a company wishes to use a PEO outside the US, it should make sure the industry is regulated in this way and check for certification.
In conclusion, a PEO may seem an attractive route to employing individuals when expanding globally but companies should make sure of the legality and the regulations to ensure the service offering is certified by the local tax authority as it is here in the US.
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