Hiring in India could be challenging for global companies due to the complex labor laws. Adhering to all the rules and regulations could be a nightmare for any company. Besides, they’ll need to incorporate their company in India to hire anyone in the country.
This is why many organisations hire employees through a PEO (Professional Employer Organisation). PEOs take care of all the HR activities, including onboarding, payroll, tax deductions & filing, employee health insurance, and compliance.
This means employees working for global companies via Indian PEOs are entitled to benefits similar to Fortune-listed companies.
That’s not it. There are several more advantages of PEO services for both employers and employees. In this article, we will discuss exactly that.
What Exactly is PEO?
Professional Employer Organisation (PEO) is an HR outsourcing option that takes care of all the HR and payroll responsibilities. In other words, PEOs act as co-employer to your employees and manage compliance and statutory benefits (as per Indian labor laws).
PEO providers offer your employees better, more affordable benefits while streamlining administrative HR activities like payroll, compliance, and workers’ compensation.
Why Do Global Companies Prefer PEO Services in India?
The primary reason companies prefer PEO services over hiring and managing employees on their own is that it saves time and money. That’s because the HR demands of running a business can really add up in the long run, especially during remote work.
According to Napeo’s 2019 study, businesses using PEO services see an ROI of 27.2%. The report focused solely on costs and calculated savings for PEO clients in five HR-related areas, including HR personnel costs, health benefits, compensation, unemployment insurance, and other external expenditures (payroll, benefits, etc.).
Here are some more benefits of PEO services for your business.
Ensure Payroll Compliance
Indian labor laws are complex. Paying salaries to employees is even more complicated. For starters, the salary structure in India includes.
It is the base income of an employee. It usually amounts to 35-50% of the total salary.
Employees are entitled to various types of allowances. The allowances offered and the limits on it differ from company to company.
- Dearness allowance (DA):It aims at mitigating the impact of inflation.
- House rent allowance (HRA):It helps employees pay the home rent.
- Conveyance allowance:Also known as transport allowance, it compensates employees for their travel expenses to and from their residence and office.
- Medical allowance: It is a fixed allowance paid to employees to meet their medical expenditure. As per Union Budget 2018, a standard deduction of Rs. 15,000 has been introduced for medical allowances.
- Books and periodical allowances:It helps employees meet the expenses associated with purchasing books, periodicals, and newspapers.
It is an amount that employers pay as an appreciation for the cumulative service offered to them upon leaving the job. However, gratuity is only paid after an employee completes 5 years or more in an organization. It is calculated as 4.81% of the basic salary.
Employee Provident Fund (EPF)
It is a retirement scheme where employers and employees contribute equally (12% of the basic salary). The contributions are maintained by EPFO (Employees Provident Fund Organization), and the savings can be withdrawn by the employee upon retirement.
The state government levies tax on the income earned by salaried employees and professionals, including chartered accountants, doctors, and lawyers. The maximum payable amount (as professional tax) in a year is Rs. 2,500. Employers deduct professional tax when paying salaries to the employees and pay it on their behalf to the state government.
It includes the non-cash benefits employees receive as a result of their official position. For instance, senior management employees in many companies get rent-free accommodation, cars for personal use, and more. The monetary value of these prerequisites gets added to the salary, and the tax is paid on them by the employee.
If a company has more than 10 employees whose gross salary is less than Rs. 21,000 per month, the employer must avail the ESIC scheme for those employees. Employers’ contribution to the ESIC scheme is 4.75% of gross salary, while the employee’s contribution is 1.75%.
PEOs typically have compliance experts that monitor labor laws and ensure payroll & statutory benefits compliance as per Indian rules and regulations.
Complying with all the regulations takes a lot of time. According to a 2018 survey, HRs spend an average of 36 hours a week on compliance-related activities.
A PEO provider can save these hours and enable you to focus on other critical aspects for growing your business. Besides, they can streamline everything from negotiating with employees to processing their salaries.
By partnering with PEOs, you can effectively and efficiently reduce risk and responsibility associated with hiring employees, such as:
- Correctly reporting, collecting, and depositing taxes to state and central governments.
- Meeting EPF and ESIC requirements.
- Management of employee-related claims
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Why do Employees Prefer to Work For PEO Services in India?
As mentioned above, PEO Service Providers offer better benefits to employees than a small or mid-sized company. PEOs, on the other hand, offer a myriad of benefits to employees, including:
- Medical, dental, and vision coverage
- Life insurance and disability insurance
- Worksite benefits
- Mental health support
- Retirement plans
- Commuter benefits
- Personal accident insurance
- Educational assistance
PEOs can offer all these benefits at affordable rates because they employ many workers and can negotiate with different vendors.
Many PEOs even offer training and leadership development services to help employees grow professionally.
These benefits and services help PEOs attract and retain top talent from across the country.