Professional Employer Organizations (PEO) and Human Resources Outsourcing (HRO) are two options to consider when deciding whether to outsource HR.
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 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.
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.
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.
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.