When to use a PEO in the UK

When to use a PEO in the UK

When to use a PEO in the UK, when to not and when to bring your employees in-house

IMA’s 2nd blog celebrating 20 years

Although the subject line is PEO (Professional Employee Outsourcing), the reality is, the UK operates an Employee of Record (EOR) business model as employees are solely employed by the Outsourcing Company as opposed to jointly employed (as in the US).  In terms of the day-to-day operation, there are minimal differences between a PEO and an EOR and, as PEO is a more widely used international term, I will continue using this abbreviation.

Looking at when a PEO is most useful – speed is probably the greatest benefit in the UK.  International companies can have dedicated staff operational within a couple of weeks whereas the typical time it takes to be able to employ UK staff, through a wholly owned subsidiary, is around 6 to 9 months (primarily due to the time it takes to open a UK bank account).  PEO companies take care of everything including HR, payroll, expense management, benefits (including private health), through to the provision of pensions; this is hassle free for the international company and typically cost effective, especially when there’s a low number of UK employees. A client receives one invoice per month and that’s all the paperwork generated.

Now let’s look at when a PEO in the UK is not the right answer – typically, if a company is going to be employing many employees, including recruiting talent from overseas where visas are required, then my recommendation is to build the UK business through a wholly owned subsidiary from the start. Overall costs for larger operations should be lower than working through a PEO and the ability to include share options becomes much easier. Understanding that some PEO firms are offering to use their own UKVI issued Sponsor Licence to bring PEO employees into the UK, we have been advised by our Lawyers not to do this as the employees are not under our direct operational control.  From an employee standpoint, we have found that some employees are more comfortable in being employed directly by the company they’re working for as PEO arrangements are less well known in the UK compared to North America, where the practice is commonplace.

Picking up on the last point, we’ve been operating our PEO solution for over 10 years and what we’ve found is that some employees don’t care who they contractually work for so long as they’re properly supported.  Where employees are looking to work directly for their employer, a PEO is often satisfactory in the event that a transition to being employed through a UK subsidiary company is planned, and typically we see an acceptable timeline for this transition being 12 to 18 months.  This is down to each international company’s business practices and prevailing circumstances.  At IMA we’ve created our PEO in such a way that companies can easily pick up our operation and transfer it into their own subsidiary. We continue to support our clients with Outsourced HR and our suppliers (accounting, legal, benefits) continue to support the employees but are engaged through the new UK subsidiary company.  From the employees perspective, there’s no change in operational support, our clients have a simple “plug and play” solution and from the service providers perspective it’s business as usual; effectively creating a win for all concerned.

There are certain things to look out for when using a PEO company in the UK and the most important relates to TUPE (Transfer of Undertakings (Protection of Employment)) regulations as the terms and conditions of employment transfer intact when employees are transferred from the PEO Company to the new UK subsidiary company. Accordingly, it is vitally important that what goes into the employees’ contracts from day 1 is what you want from an operational and commercial perspective as this is what will be in place for the PEO engagement and when the employees transfer to the new UK subsidiary.  Too often we have seen “off the shelf” employment contracts used which clients get stuck with.  At IMA, we work with our clients to ensure that employee contracts are good from day 1 and future proofed.

If you have any questions, or would like further information on IMA’s PEO/EOR operation in the UK, please do not hesitate to contact me at ntaylor@managementanswers.co.uk

by Nigel Taylor, MD and Founder