Companies often face tough decisions regarding managing their workforce in today's business world. They must choose whether to manage their HR in-house, use a human resource outsourcing (HRO) company, or partner with a professional employer organization (PEO). While both options offer advantages and disadvantages, understanding the differences is crucial for making the best decision for your business. In this blog, we will discuss the differences between HRO companies and PEOs, and provide a list of pros and cons for each option.
Human Resource Outsourcing (HRO) Companies
HRO companies are third-party service providers specializing in handling specific HR functions for businesses. These functions can range from payroll processing to benefits administration to employee relations. HRO companies allow businesses to outsource particular HR functions, which can help reduce overhead costs, improve efficiencies, and provide comprehensive expertise and support for HR-related matters.
Pros of HRO Companies
Cost Savings: Outsourcing HR functions to an HRO company can help businesses reduce overhead costs by eliminating the need to hire and train HR staff.
Comprehensive Expertise: HRO companies often have a team of experts with specialized knowledge in various HR functions, such as payroll, benefits administration, and compliance. This can provide businesses with greater expertise and support for HR-related matters.
Improved Efficiencies: By outsourcing HR functions to an HRO company, businesses can reduce the administrative burden on their staff, allowing them to focus on core business activities.
Cons of HRO Companies
Limited Control: When outsourcing HR functions to an HRO company, businesses may have less control over how these functions are performed, which can lead to concerns over quality and consistency.
Communication Issues: Working with an HRO company may result in communication challenges, as the HRO company may be located in a different geographic area than the business.
Decreased Buying Power: HRO companies don't add a heart count to your books. Therefore, HROs can't bargain with benefit carriers with additional people.
Professional Employer Organizations (PEOs)
PEOs are HR outsourcing firms that offer a broader range of services than HRO companies. In addition to providing HR services such as payroll processing, benefits administration, and compliance, PEOs act as co-employers, taking on a portion of the employer's responsibilities for their client's employees.
Pros of PEOs
Comprehensive HR Support: PEOs provide a full range of HR services, including compliance management, employee relations, and performance management. This allows businesses to focus on core activities while the PEO handles all HR-related tasks.
Shared Liability: By acting as a co-employer, PEOs assume a portion of the employer's responsibilities for their client's employees, which can help reduce liability risks for the business. Know that increased liability, generally, means increased costs.
Increased Buying Power: PEOs can leverage their client base to negotiate better rates on benefits and insurance, which can provide cost savings for businesses.
Cons of PEOs
Less Control: Like HRO companies, partnering with a PEO may result in less control over certain HR functions, as the PEO assumes responsibility for managing these functions.
Reduced Autonomy: PEOs take on a portion of the employer's responsibilities, which may limit the employer's ability to make certain decisions regarding their employees.
Higher Costs: PEOs typically charge higher fees than HRO companies due to their additional services and the co-employer relationship they establish with their clients. Increased liability increased cost to mitigate risk.
Choosing the Right HR Solution for Your Business
Deciding between an HRO and a PEO can be a difficult choice for businesses. While both options offer advantages and disadvantages, leaders must make the best decision for their companies with a holistic understanding.