What Is the Difference between PEO Services and HR Outsourcing?

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What Is the Difference between PEO Services and HR Outsourcing?

June 7, 2022  |  georgev Categories: Blog

The remote work world increases in popularity daily. More and more people want to work from home, travel while they work, and forfeit their commute to the same place, but still work for a company they love. 

In addition to the conversion of in-office to remote work, new companies form because of the desire for remote work. Both new and existing companies demand access to outsourcing services to grow their business.

At the core of the conversion from in-office to remote workers, the idea is simple: take everything that is in the office and put it online. For the businesses, it takes a little more effort.

One main consideration for a business to weigh is the outsourcing service. Two general outsourcing services exist, PEO services and HR outsourcing.  

Think your business could benefit from PEO services or HR outsourcing? This article highlights the meaning behind both and the differences between the two. Read on to see which one will help your company more. 

PEO Services 

PEO services, or professional employer organizations, assist businesses with growth and expansion through outsourcing methods. PEOs work with your company to streamline HR tasks like payroll, benefits, taxes, risk reduction, and time management, as well as recruitment. 

This allows businesses to focus on running their company, which in turn makes for a more successful business. They also let companies expand to other countries without moving their physical offices.

Your employees will be happier too! PEOs work to increase employee retention rates, create the best benefits package, and sort out payroll issues. PEOs offer packages to businesses.

HR Outsourcing

Businesses utilize HR outsourcing (HROs) as 3rd-party providers. HR outsourcing focuses on single HR needs for the company. 

For example, if a business needs help with payroll, it can use an HR outsourcing company for assistance. Since HROs are third-party providers, they are not considered co-employers with the company that hired them.

HROs can offer packages, but they mainly provide single services. 

Differences between PEO Services and HR Outsourcing

One of the main differences between the two agents is what kind of company uses which service. As mentioned previously, PEO services are used in newer and smaller businesses. 

This is for a couple of reasons. Smaller businesses need to gain traction, so using a service designed to recruit and retain workers helps tremendously.  

Since PEOs focus on every kind of HR matter, smaller companies tend to invest in them so they can focus on their own work while their business grows.

Bigger and established businesses favor HROs because they do not have to outsource them for each HR operation. These companies have been around longer, so they know which administrative tasks they can work on themselves and which ones they need to outsource.

Legalities Involved 

PEOs function as co-employees to the company they partner with. This means that when a PEO works with a company, it is responsible for legalities involving its employers, taxes, and revenue. 

When a PEO signs on with a company, they both agree that the PEO takes full responsibility for legal responsibilities and ramifications thereafter. They sign a binding contract.

PEOs handle every HR responsibility because the company is not legally allowed to get involved with HR duties. PEOs work with several companies at once, however, it is difficult to get out of the agreement once it starts. Companies include PEOs on their taxes as their co-employees.

Being a third-party provider (HROs) means you do not sign a contract granting them access to all HR matters. Business owners can hold responsibility for certain HR matters they want to handle in-house.

HROs are not considered co-employees, and the company is not indebted to work with the same HRO. Companies can freely choose which HRO companies they want to use for different tasks.

Companies do not include HROs on their taxes as co-employees. 

Insurance Deals

PEOs offer lower insurance plans to businesses as part of their services. Since PEOs consider themselves large businesses, they can access lower insurance plans. 

Without PEOs, companies would not qualify for these great insurance benefits on their own. However, remember the partnership between a company and a PEO? Since the PEO is a co-employee with the business, insurance companies can offer their deals to the businesses through the PEOs. 

Another benefit to an insurance plan through a PEO is that taxes encompass the services they provide. Not only will you have better insurance through your job, but the PEOs also handle all of the nitty-gritty insurance policies and paperwork. 

HROs handle specific requests and do not offer insurance packages or bundles to company employees they work with. 

PEO Security Measures 

Keeping yourself safe in the modern world is tricky, especially on the internet. When it comes to cyber protection, you should make sure you always have the highest level of safety. 

PEOs can help you with better security. Those who work for PEO services train to handle sensitive data such as social security numbers, addresses, and tax information with the utmost care. 

This is where the co-employee contract comes in handy. PEOs and the company share equal responsibility when it comes to taxes and audits. 

HROs can help security measures within your business, but come tax season, they do not hold responsibility for audits. HROs are third parties and not co-employees, so if your company gets audited, they do not legally need to help you. 

PEO or HRO

PEOs and HROs both help businesses with administrative HR tasks that diminish time spent on daily operations. With the help of a PEO or an HRO, you can grow your company, assist your employees, and provide a better work atmosphere for your business. 

Choosing between a PEO and an HRO depends on your business. If you want to grow your employee pool you should look into a PEO. If you want to grow your clientele while taking care of your employees, you should look into an HRO. 

Contact us to see the PEO services we offer.