HR OUTSOURCING VS PEO

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HR OUTSOURCING VS PEO

The move to remote culture in the wake of the worldwide pandemic has created an urgent need for an effective HR system as more and more employees are losing motivation due to the difficulty with adapting to the new normal. Here, HR teams have a central role to play, and to make sure that employee engagement stays strong.

Modern HR management needs expertise in various aspects such as recruitment & on-boarding compensation and benefits, payroll services, employee relations, employee engagement, and more.

The importance of personnel management has increased widely over the last 20 years. In today’s workplace, the HR team needs to be proficient enough to be able to contribute towards achieving the strategic goals of the business. Creating an effective workplace culture can go a long way in building trustworthy relationships with your employees.

As managing HR can be difficult for a standalone business, it is better to outsource a portion or sometimes all of a business’s HR functions. With an integrated system including HRIS and payroll software, HR teams can easily boost employee productivity during these unprecedented times.

Here come two solutions which you can choose from- HR Outsourcing or picking a Professional Employer Organization (PEO) Although both of these HR solutions guarantee a similar outcome, the way each of them operates can be different.

HR Outsourcing

HRO is a sustainable and flexible model to manage overheads and allow a company’s core competencies not be affected by focusing on strategic goals rather than managing administrative or operational tasks in HR.

Established and bigger companies tend to choose this model because they already have established HR units in place, and only need assistance with tedious tasks like payroll services, administering benefits, training, etc. However, it does not become a co-employer to your business’s employees, in the sense your employees will still remain on your business books and you will be accountable for any legal responsibility for their actions.

The goal of the HRO is to provide customized solutions for your particular needs, rather than offering a one-size fits-all approach.

PEO Services

PEOs, partner with organizations to take over the entire HR operations under control by becoming the co-employer of the business’s employees. In this model, you tend to lose control over all the essential processes and HR operations. But it can be quite an advantage for small businesses or startups that can’t afford an efficient HR unit.

As the co-employer the PEO will be responsible for payroll, benefits, tax administration, workers’ compensation, etc. Due to PEOs bundling services together, there is also an advantage of economy of scale in the pricing. PEOs can secure competitive rates for services like health insurance, in turn decreasing the financial burden on your company.

Based on the study published by the National Association of Professional Employers Organizations, small businesses who employed a PEO got 40% higher revenue growth. Also, PEO clients’ employee turnover is more than 10% lower than non-clients’ turnover.

Which option should you opt for your business?

The PEO assumes all risk and handles all the legal hassles related to the company’s employment practices. Only the limitation is that the partnership turns the PEO into a co-employer, where you still are in complete control over the company’s operations but you ought to share control over decisions concerning your employees.

Whereas HRO doesn’t assume responsibility for compliance, it gives you the flexibility to outsource major HR operations without the need to partner with the third-party company leaving you with complete control over all aspects of your organization.

 So, which should we label as the better one?

There would be no single answer to this. If yours is a new company, or a growing startup, the PEO may be the better choice as it guarantees a risk-free model eliminating you from the burden of taking up time-consuming HR processes, and letting you focus on the core aspects, which will drive more revenue to your company.

If your company is an established one with a proper HR team in place, HRO might be the better option here as you don’t need the PEO’s competitive pricing schemes or risk management. Instead, you can benefit from outsourcing the basic HR operations to the HR experts in the field.