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Human Resources Outsourcing - Professional Employer Organization (PEO) Or HR Outsourcer Provider?

By Charles Everett

 

Running a business is a full-time job and you need to spend your time ensuring the business runs smoothly. When managing payroll and related Human Resources tasks begin to distract you from focusing your organization's primary business, it may be time to outsource some or all of your HR-related activities. In such cases it makes sense to turn to a company that handles HR administration as their primary business.

 

Depending on your needs, you may want to consider either a Human Resources Outsourcing (HRO) provider or a Professional Employer Organization (PEO).

 

You should first consider how much of your HR function you want to outsource. Working with an HRO lets you outsource specific HR functions. A PEO on the other hand "bundles" services such as workers' comp, payroll and benefits and generally can't offer them as stand-alone options.

 

Whether you hire a PEO or an HRO, you will still need an in-house HR administrator or manager to work with the vendor. However, the vendor can handle a variety of tasks your staff may not have the time to do. They may also provide expertise in areas your staff is not familiar with, such as making sure your company is in compliance with the latest employment laws, benefits administration and payroll tax reporting.

 

Neither a PEO or HRO provider will manage your employees. Rather, both will work with you and your HR staff to handle some or all of your HR functions, including payroll, benefits administration,compliance, training and more. Think of both as augmenting your Human Resources staff, not replacing it.

 

For smaller businesses a PEO can help control HR costs such as Workers' Compensation Insurance, Group Health benefits and Payroll Processing. In order to deliver these and other HR services the PEO becomes a co-employer of your organization's workforce.

 

In most instances the PEO is considered the employer of record, though the client controls the day-to-day activities of the workplace. While you maintain authority over your employees on your work site, the PEO is responsible for managing benefits, remitting payroll taxes, processing workers' compensation claims and processing employment paperwork.

 

So, why would you want to let someone else co-employ your workers?

 

Pricing and efficiency. A PEO pools the buying power of many business just like yours, which provides pricing advantages it can pass down to it's clients. Through these economies of scale the PEO can often secure workers compensation insurance and group health benefits (which are provided to your employees) at much lower rates than your company may be able obtain on it's on. Working with a PEO can also buffer the employer from sudden rate increases in health care or workers' compensation premiums.

 

Additionally, because the PEO specializes in employment -related activities it is literally in the business of employment. PEOs processes and files all payroll administration and taxes, processes worker's comp claims, and administers employee benefits. This reduces the amount of work the employer has to do but also expands the benefits and service to employees. Additionally, working with a PEO can eliminate unexpected paperwork and costs. For example, if payroll taxes are audited by a workers' compensation carrier it's the PEO who is audited, not your company.

 

Again, PEOs are not a replacement for your HR department but supplement your HR staff so they can focus on traditional HR areas such recruitment, hiring, and training. Don't have time for the traditional functions either? No problem - most PEOs also offer the ability to handle recruiting, background checks and more. A PEO can provide complete support for all of your HR functions, allowing your company to focus on why it got into business in the first place (probably not for payroll taxes and benefits administration).

 

So, should you use a HRO provider or PEO?

 

The first factor to consider in choosing between the two options is your company's size and scope of need. Many HROs work with larger companies who because of their size can obtain more competitive pricing on benefits and risk management solutions and also have a large in-house HR department. For these companies, they save more money by outsourcing specific areas of the HR such as benefits administration, application management, HR Information systems.

 

Many smaller companies on the other hand (under 500 employees) benefit from bundling their services with a PEO. The pricing advantages and efficiency offered by a PEO make outsourcing HR-related administration an essential component of their business planning. In either case, comparing HRO and PEO vendor proposals is critical. Websites such as EmployHR.com provide businesses with free price quotes from multiple HRO and PEO vendors. You may also want to spend some time researching HR Outsourcing options at the Society for Human Resources Management (SHRM) website, shrm.org

 

In summary, the decision to outsource HR is an important one. First understanding the difference between HROs and PEOs can help you make the right choice. if you intend to outsource only certain functions, an HRO is the best solution. If you're looking for a full-service solution, a PEO could be a better option.

 

Charles Everett is president of Everett HR, LLC http://www.everetthr.com a marketing and communication agency serving the HR marketplace. Their web site EmployHR.com - http://www.employhr.com meets the growing procurement needs of the HR industry. EmployHR.com matches the HR requirements of businesses with leading service providers who can best meet their needs. By receiving multiple proposals businesses can compare rates and make informed purchasing decisions.

 

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