Professional Employer Organization, Pros and Cons

Introduction

A Professional Employer Organization service, also known as an Employer of Record, provides a streamlined and efficient option for quickly and efficiently entering the Thai market.

A PEO provides valuable support in navigating the compliance requirements in Thailand, including the onboarding process for employees and managing essential accounting and payroll responsibilities.

Les points essentiels

It allow clients to enter Thailand and begin their intended business activities quickly.
PEOs can offer solutions for a variety of needs e.g. starting business activities while incorporating a company or allowing foreign staff to work with Thai partners or customers.
The foreign contractor’s services must align with the service provider’s business objectives and licenses.

What type of client would a PEO in Thailand be useful for?

PEO services are a valuable resource for corporate clients and high-level individuals looking for quick access to the Thai market. This service offers the perfect opportunity for an individual to come to Thailand and begin operations quickly before undergoing the company registration process for their own entity or company.

The company registration process can be time-consuming and could delay a business’s initial entry into the market by up to 4 months. By engaging in a this service, clients can begin their operations quickly while also establishing their entity, ensuring a smooth transition upon registration of their entity.

PEO services also allow clients to test the Thai market and establish whether it would be a good opportunity for their project.

What are the Pros of using a Professional Employer Organization in Thailand?

PEO services offer significant advantages for international businesses interested in investing in Thailand. Please note, that parties engaging in a this service must understand certain principles to ensure the legitimacy of the agreement; more on this will be discussed below.

Quick entry to the Thai market

The company registration process can be time-consuming and could delay a business’s initial entry into the market by up to 4 months before you can support a visa and work permit.

By engaging in a PEO service, clients can begin their operations quickly while also establishing their entity, ensuring a smooth transition upon registration of their entity.

Exploring the Thai market

Establishing a business presence in Thailand requires carefully considering the most appropriate approach for your long-term goals. While this services offer a quick and efficient path to entering the Thai market, they may not be suitable for long-term operations. Establishing a Thai limited company is the preferred option for businesses seeking sustainable growth and deeper integration into the Thai business landscape.

PEO services provide a valuable initial step by handling payroll administration, tax filings, and employee benefits on your behalf. This can be particularly beneficial for businesses embarking on short-term projects or those seeking to test the waters before committing to a long-term presence in Thailand. However, as your operations expand and you look to establish a more permanent footing in the country, a Thai limited company becomes the more strategic choice.

PEOs are not just for SMEs looking to enter the Thai market

For businesses engaged in collaborations or partnerships with Thai companies, it can present a viable solution for managing foreign staff stationed in Thailand. In such scenarios, the foreign client or partner may require the presence of foreign personnel within Thailand to facilitate seamless collaboration with their Thai counterparts. PEOs can effectively handle these foreign staff members’ employment and administrative aspects, ensuring compliance with Thai labor laws and regulations.

PEOs can be a cost effective solution

If you are in a situation where you are just testing the Thai market or looking to work on a short term project in Thailand engaging a PEO service removes a lot of additional costs. For example, other options will require monthly accounting and tax payments, a yearly audit and the accompanying preparation of financial statements etc. Engaging a PEO service will handle all of this on your behalf and relieve the burden of these additional fixed costs.

What are the cons ?

While using a PEO service offers significant advantages, some important considerations must be considered.

Your choice of PEO provider may be limited

While it is entirely possible for to employ a foreign contractor whose primary role involves delivering services to the client under a valid service agreement, both the client and the service provider must ensure that:

The foreign contractor’s services align with the provider’s business objectives and licenses.
The position assigned to the foreign contractor is legitimate and restricted for foreigners under Thai law.

Therefore, you must ensure your provider operates within the same industry and offers similar services to those you do. This is vitally important because any foreign contractor who engages in a PEO service must be the service provider’s genuine and legitimate employer.

All parties must understand that:

The Thai entity remains accountable for the actions of the foreign contractor.
The foreign contractor must follow the Thai entity’s HR policies and work rules.

Loss of control

While PEOs can provide significant time and resource savings by handling a wide range of HR functions, they may also limit your control over certain aspects of your internal processes. For businesses prioritizing complete autonomy over their HR operations, partnering with a PEO may not be the best fit. As mentioned above, the Thai entity will be responsible for the actions of the foreign contractor, so strict agreements will need to be enforced.

You may be responsible if your provider makes a mistake

While partnering with a PEO can alleviate the burden of payroll administration and tax filings, exercising due diligence regarding their tax practices is crucial. Despite the role as the employer, the parent business or contractor will be accountable for any errors in payroll tax filings. Therefore, you should thoroughly examine the PEO’s tax filing procedures. Auditing the payroll tax returns filed by the PEO is essential to safeguard your business from potential tax liabilities.

The risk of permanent establishment

A poor agreement between a PEO service provider and a client could lead to Permanent Establishment (PE) and result in tax liabilities for the company.

If the agreement is not properly drafted, it may not clearly define the roles and responsibilities of each party. This could lead to disputes over who is responsible for certain tasks, such as payroll and employee benefits. If the PEO service provider does not properly manage these tasks, it could lead to the creation of a PE.

If the PEO service provider does not have adequate experience and expertise in the client’s industry, it may not be able to properly manage the client’s employees. This could lead to compliance issues, such as failure to pay the correct taxes and social security contributions. If the client is audited by the tax authorities and these issues are discovered, the client could be held liable for back taxes and penalties.

To avoid these risks, it is important to have a well-drafted PEO agreement in place. The agreement should clearly define the roles and responsibilities of each party, address the issue of risk allocation, and contain adequate dispute resolution provisions.

Notre réflexions

PEOs offer a dependable and efficient way for businesses to begin operations and limit their initial risk when entering the Thai market. PEOs allow clients to swiftly begin business operations in Thailand or work with their Thai partners more efficiently.

PEOs have some drawbacks, but with a carefully structured agreement, these risks can be mitigated. However, it is essential that the PEO service is legitimate and the business objectives of both parties align to ensure protection for both parties.