HR Outsourcing: PEO and HRO Explained

November 19, 2024

Human resource management is a complex and time-consuming task for small and medium enterprises (SMEs). Many business owners find the endless paperwork that comes with HR compliance overshadows their company’s growth. Rather than hiring an internal HR team with already limited resources, many SMEs turn to a Professional Employer Organization (PEO) to assist with their HR needs. Larger companies with established HR departments often seek Human Resource Outsourcing (HRO) to streamline administrative tasks and enhance efficiency.

PEOs and HROs offer two different solutions regarding HR management despite sharing a lot of similar functions. 

Core Differences between PEO and HRO Services

PEOs as Co-Employers

A PEO operates under a co-employer business model, where the PEO serves as the administrative employer. This means both the PEO and client company share employer liability for the employees, with the PEO taking on certain employer responsibilities on behalf of the client company. PEOs do not have any control over their client companies; the PEO’s assistance simply helps to give their clients more time to run their businesses.

ProSourceSolutions’ PEO services offer comprehensive HR bundles that provide solutions for a range of needs. ProSourceSolutions deposits payroll taxes, files payroll tax returns under its Employer Identification Number (EIN) and provides human resource information system (HRIS) platforms. Our PEO also handles administrative tasks and offers advisory services. 

HROs as a Third-Party Vendor

On the other hand, HRO services work on a contract basis, handling some or all of your HR operations. ProSourceSolutions provides various essential HR services to more complex and strategic services as part of our HRO solutions.

Some companies prefer HROs to outsource specific HR tasks. Clients can still manage any HR concerns not specified in their contract. Most HROs will manage anything from payroll, health insurance, employee hiring, onboarding, and training, tax and benefits administration, and workplace safety oversight and policy creation.

Benefits of Utilizing PEOs 

If an SME does not have its own HR department, it might consider a PEO as a comprehensive service. PEOs can substantially benefit SMEs in four ways: reduced administration, benefit packages, compliance and risk management, and HR management. 

  1. Reduction in Administrative Duties

When you outsource your HR to a PEO, your administrative load as an SME is drastically reduced. The PEO takes on tasks like payroll and tax processing, submitting necessary wage and tax information to the government, benefits administration, learning and development, and compliance. PEOs help SMEs become more efficient and focused on growing their business.

  1. Access to Better Benefit Packages

Competitive group benefit programs help SMEs achieve higher employee retention rates and a better chance of attracting quality talent. PEOs excel at securing reduced insurance premium costs and offering better coverage levels than standard market plans. 

  1. Improved Compliance and Risk Management

PEOs are experts in HR compliance related to labor, discrimination and harassment, health and safety, and data privacy laws. Outsourcing HR compliance relieves clients’ stress of learning all the laws and regulations surrounding HR and gives them more time to focus on business development.

  1. Holistic HR Focus

Aligning HR strategies with business objectives is essential. If done correctly, it can drive organizational performance and enhance employee productivity by growing a positive workplace culture. As co-employers, PEOs ensure HR focuses on only the best outcomes for clients, bringing a holistic view to HR management.

Benefits of Utilizing HROs

For bigger businesses that may already have their own HR department, HROs are an option for outsourcing specific HR duties. Outsourcing specific HR functions can benefit businesses in several ways, including cost efficiency, HR expertise, employee satisfaction, and customizable services.

  1. Saving on Costs

Outsourcing to an HRO service can be more cost-effective than spending resources on recruiting, training, and retaining in-house HR staff. The HRO can also negotiate to lower costs on things like insurance and benefit packages for their clients, benefitting from their economies of scale.

  1. Provides Specialized Expertise

Many HRO services employ a wide range of HR professionals who can provide expert advice on various HR issues, such as talent acquisition and performance management. HROs are also up-to-date on industry trends and regulations, making them invaluable for a competitive and compliant business.

  1. Increased Employee Satisfaction 

Utilizing HROs alongside a business’s existing HR department allows the internal team to focus exclusively on employee relations and issues. This approach can significantly improve employee experience and retention by enabling faster resolutions to disagreements and concerns.

  1. Services and Benefits are Fully Customizable

Bigger businesses with an existing HR department can customize HRO services and benefits that do not already exist within their organization. This allows for complete control over how the HRO functions within the business and enables the customization of the services and benefits at any time.

How to Choose the Right Option for Your Business

Regardless of your company’s size, selecting the right solution, PEO or HRO, for your business is crucial and requires thoughtful consideration. Below is a list of critical factors to help you determine whether ProSourceSolutions’ PEO or HRO services are the best fit for your needs.

Business Size and Complexity

Our PEO services are the best option for SMEs. We provide comprehensive HR services, allowing business owners to focus their efforts on growing their business rather than struggling with additional paperwork or trying to hire an HR professional. 

ROs are often the preferred choice for larger businesses, particularly those with an existing internal HR department. At ProSourceSolutions, we offer a wide range of customizable HRO services, allowing you to tailor solutions to meet your business’s specific needs.

Budget Limitations

When faced with budget constraints, several factors must be considered when outsourcing HR. PEOs have a fixed fee structure and allow for a much more rigid budget, whereas HROs may offer flexibility with their pricing based on the services a business requires. 

Specific HR Services Needed

If your business needs a holistic approach to HR management that can cover a broader range of services, such as payroll, benefits, and compliance, PEO is the best option. 

An HRO service is desirable for businesses that need only a handful of HR services, such as talent acquisition, organizational development, and performance management.

Level of HR Involvement

The level of HR involvement largely depends on business needs. An SME usually benefits more from PEOs as they offer a more hand-holding approach to HR management and responsibilities due to the co-employer status. 

Larger businesses with internal HR departments find HROs more applicable since they only take on specific tasks, allowing the business to retain greater control over its HR functions.

PEO or HRO?

Despite the implications that PEOs are for small or medium businesses and HROs are for larger firms, there is no one-size-fits-all solution for HR outsourcing. The best choice for HR outsourcing services depends on the specific requirements, characteristics, and goals for your business. 

By properly assessing your business needs, you can make a well-considered decision that is best for you and your business, whether that be a PEO or an HRO. 

Discover how ProSourceSolutions can meet all your HR outsourcing needs

ProSourceSolutions offers a wide range of PEO and HRO services designed to address your HR outsourcing needs, including:

As your trusted co-employer, ProSourceSolutions simplifies HR and employee administration, empowering you to maximize the benefits of HR outsourcing. Transform your organization into an employer of choice and experience the ProSourceSolutions difference.

Posted in HR Trends & Articles