Choosing Between PEO and HRO Services

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Small- and medium-sized businesses employ about half of the nation’s workforce. Unlike major industrial entities and large businesses, they have much tighter profit margins and need every competitive cost advantage that they can find. Outsourcing is a way for businesses and other entities of all sizes to reduce their operating costs while getting more work done.

Two popular outsourcing channels are human resources outsourcing (HRO) and a professional employer organization (PEO). An HRO handles your human resources needs while a PEO handles employment needs by hiring workers and providing them to you so that you can accomplish your business goals. Both help to improve profit margins while enabling you to get work done. They do so in different ways, though. Each has its advantages and disadvantages. Here’s a closer look at each.

Advantages of a PEO

Working with a PEO requires partnering with that organization to obtain qualified workers needed to complete the work that your business or other entity needs to get done. Those workers are not your employees. Instead, they work for the PEO, which handles all the administrative matters associated with being an employer.

When the PEO provides the workers, it handles all of the interviewing, hiring, and payroll tasks. It also handles any mandatory benefits and worker’s compensation requirements that go along with employing workers. Instead of handling those tasks in-house, you can pay the PEO to handle the employment side of your business and spare the expense of administrative costs. You just negotiate a contract and renew it as needed to get work done.

Job providers can choose between certified PEO vs non certified PEO service providers and get quality workers and managers. A certified PEO is the better of the two because it has taken the time to prove its qualifications and obtain certification status as a PEO. It’s similar to the difference between hiring a certified mechanic and a non-certified mechanic to work on a Mercedes-Benz. A certified mechanic has the proven knowledge and skills to do the work while the non-certified mechanic is more of a risk and might or might not do good work.

Advantages of an HRO

An HRO operates similarly to a PEO, but it does not employ the workers. Instead, you employ them after the HRO locates and interviews them before you hire them. You pay their salaries and wages. You provide the benefits and worker’s compensation protection in case any suffer work-related injuries or illnesses. The HRO simply handles the administrative tasks, including arranging payroll and administering benefits.

The HRO gives you more control over the hiring process and enables you to promote or fire workers as you see fit. You have more control over the hiring and firing process and can scale the HRO service to your current and future needs instead of waiting for the next contract period to make your changes. The ability to exercise more control over the hiring and firing process gives you more control, but it also comes with more vulnerability to potential labor issues, such as needing to provide worker’s compensation insurance and worker benefits.

As a direct employer, you are more vulnerable to potential lawsuits due to possible workplace discrimination, hiring and firing practices, or employment issues. You might have a union organization effort or possibly a strike if a union already is in place. You might experience production disruptions if a union local votes to strike and walk off the job. Those are just a few of the many possible disadvantages of using an HRO service for employing workers.

Choosing a PEO vs an HRO

The choice between a PEO and HRO generally comes down to how much control you want to exercise over the workforce versus how much you might want to save on administrative costs. A PEO offers additional levels of protection against workplace disruption due to labor issues and potential liability as an employer. An HRO gives you more control over the hiring and firing process and scalability to match your business needs. But it comes with more vulnerability as the actual employer.