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When business owners choose what services to outsource, they often opt for human resources because it saves money and time in areas that typically aren’t core to the business.
HR outsourcing can:
- Provide companies deep HR expertise
- Help companies stay in compliance with HR regulations
- Improve processing and response times on HR functions like payroll and benefits
Professional Employer Organizations (PEO) and Human Resources Outsourcing (HRO) are two options to consider when deciding whether to outsource HR.
PEO-Co-Employment Relationship
A PEO becomes a co-employer (employer-of-record) transferring liability to the PEO for much of the responsibility and administrative burden inherent in the employer role. The business retains control plus direction and management of employees, while the PEO assumes responsibility for many aspects of HR, employee benefits, payroll and workers’ compensation insurance. PEOs serve many clients translating into service efficiency and lower costs for insurance and benefits. For small companies, a PEO can provide affordable access to health plans and a 401(k) that would otherwise not be possible. Because PEOs leverage master plans for insurance and benefits, clients avoid workers’ compensation audits, large premium deposits and heavy administrative burdens.
HRO—A La Carte Services
HRO companies serve as the coordinator and manager of selected HR functions. While a PEO bundles HR services together with workers’ compensation insurance and payroll to form a co-employment relationship, HRO services are offered on a flexible, a la carte basis. HROs can assume responsible for some or all of your HR administrative needs including payroll, HR strategy and benefits administration. With this model, companies can pick and choose which services they’d like to outsource and which they’d rather keep in-house. Sometimes, larger companies utilize an HRO to broaden expertise in areas not covered by their own in-house HR department, like HR best practices, policies or even payroll services.
PEO vs. HRO Services
The main difference is the varied business models. PEOs bundle services and co-employ. HROs provide a la carte services for HR strategy and administration. PEOs offer workers’ compensation insurance and benefits products for your employees. HROs do not provide insurance products, and in the area of benefits, HROs and PEOs both administer client plans, but only PEOs typically offer the plans themselves. As part of the workers’ compensation offering, PEOs typically offer workplace safety guidance and resources which is not a core focus for HROs.
When it comes to PEO vs. HRO services, there are many similarities.
Both PEOs and HROs can provide:
- Access to certified HR professionals
- Development of employee policies and handbooks
- Efficient payroll processing, payroll tax administration and year-end W-2 processing
- Employment law guidance and tax compliance
- Technology tools for employers and employees
- Administration of benefit plans
PEO vs HRO Services: Which Makes More Sense for My Business?
When considering HR partners, it really comes down to the option that makes the most sense for your business. Ask yourself which employment arrangement you prefer and what services your company needs.
Look to a PEO if you:
- Want a turn-key solution to limit HR liability and reduce administrative burden
- Seek affordable employee benefits and workers’ compensation insurance options
Look to an HRO if you:
- Want maximum flexibility to outsource certain portions of HR
- Seek guidance on organizational strategy
If you’d like to discuss whether it makes sense for your company to partner with a PEO, call 800-277-1620. Read more about FrankCrum’s comprehensive HR solutions and human resource management services here.
