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PEO vs. Traditional HR: What is the Difference?

Written by Stephanie Fortune

Hi, My name is Stephanie! I am passionate about helping small and medium-sized businesses empower themselves and their employees while working to achieve their strategic goals! By reviewing your unique business needs, we implement Payroll, Insurance, and HR solutions that are right for you!

May 7, 2024

Do you know that PEO (Professional Employer Organization) is an affordable alternative to managing an organization? Outsourcing is not a weakness; rather it can be an effective tool for businesses to strategize resources appropriately. When you are using PEO services, the overall cost of managing administrative tasks becomes more affordable.

Traditional HR performs all the administrative and employee management duties staying as a part of the organization. While it may give you complete control over your business, it also tends to consume a large part of the resources, which could have been used for other operational aspects or building client engagements. 

5 Key Differences Between the Functioning of PEO vs. Traditional HR

Some of the key differences between PEO and traditional HR that can help you understand their roles a little better: 

Expertise and Compliance Assurance

One of the core benefits of using a PEO is that it has dedicated HR professionals who deliver expertise in core HR disciplines. The PEO can keep themselves up-to-date with the latest regulations and reduce the compliance burden on hiring companies. Imagine PEOs as your co-employer managing a part of your business. 

Traditional HR can have less efficiency in keeping up to date with current laws. This may put the company at risk of non-legal compliance. 

Employee Benefit Negotiation 

PEOs have better access to more benefits like health insurance, retirement plans, and wellness programs. This kind of arrangement is especially attractive for businesses that seek to leverage more on resource optimization. 

Traditional HR may have low power to bargain for benefits from the providers, or insurance agencies. Therefore, they face challenges in procuring optimum employee benefits for their firms. 

Scalability Features 

PEOs are helpful for businesses that are at the starting phase of market capturing. These firms tend to have limited resources and they prefer to use it optimally. However, as the business expands, the PEOs generally offer more benefits and ensure “up-scalability” as per needs. 

In other words, PEOs are flexible and can handle any organizational changes including their scales. Traditional HR may find it to be challenging at rapid “up-escalation”, they need time to absorb the shock. 

Personalization in PEO

PEOs have a greater chance of understanding the business needs and allocating resources accurately. They are more suited to customizations and catering to the needs that demand urgency. 

On the other hand, traditional HR may have significant challenges in understanding what business needs. Due to their limited experience, they may not deliver the right solutions and move for a “one size fits all” approach. 

Cost Effectiveness in Operations 

PEOs have a lot of industry experience and this helps them to negotiate better for your employees with the insurance companies. They are also able to make better deals with other entities for benefit procurement. 

On the other hand, traditional HR does not have much industry exposure, they may blindly follow the organizational rules without any strategic improvement in operations.

Therefore, it is obvious that both the PEOs and traditional HRs have their advantages. Traditional HRs may use the expertise that they have in managing your organization, lacking strategic input. However, PEOs may provide you with both industry-wide benefits and strategic inputs for your employee administration. 

Final Words

In order to choose between PEO services and traditional HR, a company needs to understand their needs first. If they are looking for higher resource optimization, PEOs can be a better alternative. The mentality and the demands of the business need to be considered for choosing what is best for an organization. 

PEOs have a benefit in terms of organizational compliance and the scalability of the operations. If you are seeking expert PEOs then contact us. You may also read our blog section to learn more about our services. 

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