How do you ensure that your business’s HR functions are streamlined and cost-effective? One critical decision business face today is which HR model to choose: PEO (Professional Employer Organization) or HRO (Traditional HR Outsourcing).
Your business, whether small or medium, requires HR outsourcing. Both PEO and HRO options provide HR outsourcing. However, PEO acts as a co-employer, while traditional HR outsourcing providers are third-party providers of HR services. Read ahead to learn more about the differences between PEO and HRO and what could be the possible solution for your business.
What are the Key Differences Between PEO and HRO?
In the following segment, we have discussed the comparison between PEO and traditional outsourcing, outlining the key features.
Set-Up
If you are considering PEO as your HR outsourcing model, they are involved in all your business risks. For instance, during tax audits, PEO takes full charge and they are equally liable. On the contrary, when you hire HRO as your outsourcing partner, you need to solely handle tax audits.
HRO companies can give you advice being your consultant but they are not responsible for any organizational strategy. However, the PEO contract focuses on shared responsibility and risk management.
HR Services
PEOs provide comprehensive services, which include payroll processing, employee benefits, tax affairs, compliance, and guidance in all areas of HR. On the other hand, HROs are the third-party providers dealing with the HR functions of your business. With the HRO model, you can choose which services you can obtain for your business.
Costs
PEOs are often costly as compared to HRO companies. PEO set-up requires more money and it can cost 3-12% of your monthly payroll. However, HRO companies cost less but they can charge higher insurance premiums. Thus, it may seem that PEO takes thousands of dollars but it is conducive to your business if you consider the overall costs.
Benefits of the Services
PEO services can be exclusive for your business but it has its restricted set of insurance plans. Such insurance plans cannot be customized. However, with HRO companies, you can choose the insurance premium because it has a flexible approach. However, HRO companies do not guarantee the substantial premium savings that are available with PEO.
Potential Advantages and Drawbacks of PEO and HRO
PEOs and HROs have their own set of advantages and drawbacks. Here, we have highlighted how advantageous these options can be and what drawbacks these could hold.
- Comprehensive HR Management and Flexibility: PEOs solely deal with every aspect of HR that is extremely beneficial for the in-house team. However, with HRO functions, you can only take the desired HR functions from the companies, leaving you more empowered to deal with other aspects.
- Cost-Effectiveness and Premium Benefits: PEOs can offer premium benefits by negotiating better rates for health insurance, retirement plans, and other benefits. However, HROs can be more effective for smaller operations. Here, you can choose one or two individual HR functions.
- Compliance Support and Retention of Control: PEOs are there to handle risk management and reduce compliance issues. But, when you hire HRO companies, you keep your control for employment decision-making to yourself without making any HR functioning company your co-employer.
Final Words
Considering which type of HR outsourcing model would be beneficial for your business depends on your business size and growth. If your business size is small or medium, it will be better for you to choose a professional employer organization. In case you are looking for HR function-related solutions, you can contact us. We provide simplified HR solutions at an affordable price. To know more about us, you can read our previous blogs.
Reference Link
https://www.businessnewsdaily.com/16514-peo-vs-hro-differences.html
https://www.talentnetgroup.com/sg/featured-insights/hro-vs-peo-hr-outsourcing-model
https://www.helioshr.com/blog/2015/01/pros-vs-cons-of-professional-employer-organizations-peos
https://www.trinet.com/insights/peo-vs-hro
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