What is a Professional Employer Organization (PEO)?
Entering a new labor market requires not only in-depth knowledge of in-country labor laws but also extensive legal and business skills that few companies have.
In Ecuador, just as in many jurisdictions, market knowledge and skills are indispensable.
That is why many international employers, wishing to engage an in-country skill base, approach professional employment organizations (PEOs) to do business in Ecuador and elsewhere.
A PEO is a form of employment arrangement that many international employers use for several purposes:
- Avoiding legal and compliance complications
- Sparing financial resources to use to set up a business
- Limiting the distractions of expanding admin work and requirements as the work pool and business grow
These tasks, and many more, save employers time and money at each operational phase when they hire professional employer organizations in Ecuador (and elsewhere).
So, what's a PEO in Ecuador?
A PEO is one form of co-employment arrangement where a professional organization (PEO) assumes one or more HR functions to simplify the HR process for employers.
By entering into a joint employment agreement with an employer, PEOs share responsibilities with employers to attract, hire, onboard, and pay employees and independent contractors.
In Ecuador, despite having not-so-stellar economic performance, investment in human capital — more so in entrepreneurs — is shown to maximize return on professional development and, ultimately, economic growth.
To identify and capture what is best in Ecuador's work pool, a PEO comes as a no-brainer.
Even more, doing business in Ecuador — smoothly, effectively, and compliantly — makes hiring a PEO make perfect sense.
What are the benefits of using a PEO in Ecuador?
Employment is a recurring process embedded in local labor laws and regulations.
An established PEO not only supports employers in performing a wide range of HR functions and activities but also comes with many benefits, including but not limited to:
Ensuring compliance with employment laws
One major advantage of bringing a PEO aboard is staying compliant with in-country labor laws and regulations.
Having an established PEO at your back watching for existing and emerging compliance matters makes you clear-minded about what matters most to you in your business.
At a very basic level, an established PEO performs HR functions, including hiring and onboarding, according to in-country main labor regulations, including Ecuador's Labor Code.
When you get deeper into the employment process, you as an international employer will especially appreciate how useful a PEO is.
Payroll processing and tax filing
Payroll management from end to end may seem simple, but it's not quite straightforward. In addition to fundamental payroll activities such as compensation calculation, employers need to handle so many compliance-related matters managing payroll. Important examples include Ecuador income tax, Ecuador tax rate, Ecuador corporate tax rate, and many more.
So, in addition to being aware of employment laws in Ecuador, you may find it indispensable to get onboard with one or more PEO services in Ecuador.
The co-employment agreement you co-sign with a PEO may include several things, depending on what exactly you're outsourcing to your chosen PEO.
For example, if you're filing and reporting personal income tax and corporate income tax to Ecuador's tax authorities (such as La Fiscalía General del Estado), doing so independently may prove prohibitive, in regard to not only regulations (for instance, if you lack sufficient legal expertise) but costs as well.
Provision of competitive benefits
This should be obvious to any international employer not particularly knowledgeable about in-country payroll considerations.
Teaming up with an established PEO, though, not only provides you with compliant compensation packages according to Ecuador's labor laws but also provides you with unmatched, customized benefits packages well suited to each employee or independent contractor.
Employment cost mitigation
As experts in everything local labor, PEOs are best positioned to manage your employment costs while hiring employees and independent contractors.
In addition to solid cost savings throughout, hiring an established PEO streamlines your HR operations in ways that optimize your overall HR strategy.
Factor in recent reviews of employment conditions and costs for independent contractors in Ecuador — particularly so-called "gig workers" — and you've got a complicated mosaic of employment costs.
Using Skuad's integrated platform, you not only get all your employment questions answered, but you also stay compliant all along.
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What are the differences between an EOR and a PEO?
Outsourcing part or all of the HR functions is, as noted, not a straightforward process. In recent years, two main forms of outsourcing HR functions have emerged: PEO and EOR (employer of record).
Although they may first appear very similar, PEOs and EORs do diverge in many aspects.
So, if you're an international employer wishing to engage a PEO or an employer of record in Ecuador (a.k.a. EOR in Ecuador) but not sure if your choice is right, here is a quick snapshot of basic differences between both forms of employment service management to get you started.
|Considered a legal representative of an employer and, as such, held legally liable to manage employment services by hiring, onboarding, and paying employees and independent contractors for an employer
||Only liable to employers insofar as agreed-on conditions included in service contract state and, as such, bears no legal responsibility for — and is not considered a legal representative of — employers when carrying out any agreed-on HR functions
|Strategizes HR functions end to end and, in doing so, exercises more control over employees and independent contractors in all outsourced HR functions
||Is limited to functional, as opposed to strategic, levels of managing and providing HR functions and, as such, has much less control over employees and independent contractors
|Brought in because of extensive legal expertise and service network to manage employment services in multiple jurisdictions
||Hired because of niche expertise in one or a few labor markets and, as such, has limited expertise (and value) when employers expand into more markets
|Crafts end-to-end contracts as part of an integrated employment service and, as such, is held fully liable for each HR activity provided under service contract
||Does not usually handle contract drafting or agreements, leaving contracting matters to client organizations
Hiring in Ecuador with a PEO
The layers upon layers of employment complexities in Ecuador are peeling off as you read on. This is why bringing on an established PEO is just a lifesaver.
In Ecuador, which is variably designated as an upper-middle-income economy (despite performing lower in reality), investment in higher education remains largely stagnant.
That said, Ecuador's human capital remains promising for many international employers, more so in certain sectors such as food, ICT, and manufacturing.
This employment opportunity cannot be captured unless you hire an established PEO versed in in-country labor laws and regulations.
Using Skuad's integrated platform to perform a wide range of HR functions enables you to bypass unnecessary regulatory hassles, stay compliant, optimize your HR operations, and, all along, grow your business when you focus on what matters most to you.
Here is how we can help:
- Employing remote talent, anywhere
- Making mass payouts in 160+ countries and 100+ currencies instantly and compliantly
- Onboarding hires in a matter of minutes
- Turning compliance into an autopilot mode without you having to drain your resources keeping tabs on the most recent compliance developments
- Customizing benefits for each employee and independent contractor
With an expert PEO such as Skuad, you get real value.
Payroll in Ecuador is challenging. It’s easy when you use a PEO.
Payroll management is complex enough in a jurisdiction you're familiar with. Going out of your area adds layers of complexities for many employers.
The proper calculation of compensation, for example, includes many components such as statutory minimum salaries or wages, social security, health insurance, withholding, and many more.
Here are just a couple of examples of compensation components you as an international employer should heed while paying your employees and independent contractors:
- Social security as a contribution percent of basic salary or wage at 11.15% for employers and 9.45% for employees
- Income tax for Ecuadorian residents levied at a progressive rate ranging from 5% to 35%, and 25% for non-residents generating Ecuador-based income
Hiring Skuad, an established PEO with an industry-defining HR solution, should be an obvious choice to handle your employment needs in Ecuador.
What a PEO in India can and cannot do for you
At this point, you should have a clear idea of the difference a PEO makes.
To recap, here is what a PEO can and cannot do for you.
A PEO can:
- Manage, error-free, all your payroll needs end to end (or according to service agreement)
- Support your hiring and onboarding efforts to optimize your recruitment operation and maximize your return on human capital
- Manage hiring risks, including costs
A PEO cannot:
- Be your legal employment service representative
- Control your workers or organization
- Be solely held liable for hiring decisions (they must be made jointly by you and your PEO)
Businesses big and small can find value in partnering with a PEO in Ecuador.
Handling the end-to-end employment process is beyond the reach of many employers, big and small.
Not only do admin burdens and costs make employment a complicated task, the need to stay compliant raises the stakes.
At Skuad, we make the employment process a breeze from end to end.
Give us a little nudge — all your employment concerns in Ecuador will be no more.