PEO vs HR Outsourcing

Also Read:

• 7 Essential Small Business HR Practices

• 6 Key Benefits of Outsourcing Payroll [Save Time and Reduce Errors]

Professional Employer Organizations (PEOs) can benefit small businesses in a co-employment relationship, as the provider of administrative services such as payroll processing, tax filing, workers compensation insurance, benefits administration, and general human resources guidance. PEOs can provide a one-source solution, with some caveats:

Oftentimes liability insurance is limited, and maintained by the client, as part of the co-employment relationship. In choosing a PEO partner, this should be clearly described in the service agreement. Some PEOs may require proof of commercial liability insurance upon application.

Generally the PEO is the “employer of record” in that tax forms are under the PEO’s Federal Tax Identification Number (FEIN), which may be confusing to employees. Eligibility for employment and identification forms (Form I-9) will need to be completed by the client, and copies may be requested by the PEO, but ultimately the client’s responsibility.

PEO fees may be based on a percentage of payroll, or a per employee per pay structure. Some PEOs base their services on all or nothing relative to payroll, taxes, benefits, etc., and it’s important to review the details prior to entering into an agreement.

Outsourcing these activities to qualified benefits brokers, such as HUB International, or certified Human Resources professionals, may not only save you money, but provide the direct client service that you and your employees may need during the period of start-up and growth within your organization.

Your business has a direct point of contact for service, and is not a call center typical of PEOs. Your outsourced partners have known qualifications and industry experience that you can rely upon. Qualified personnel will guide your business through compliance requirements; as an example, hiring an employee in Pennsylvania needs registration for state, unemployment, and local school district tax, and hiring an employee in Texas only requires unemployment tax since Texas doesn’t have state taxes. These are details that a PEO may or may not be able to guide you on. 

Benefits are designed based on your company, employee demographics, and what matters most to them, to attract and retain talent. PEOs base their premiums on the populace of their membership, which may not be reflective of your business. Working outside a PEO ensures no one size fits all, and customization that works for you.

PEOs are great for small businesses, though consider the trajectory and timeline for growth, as transitioning from a PEO to independent insurance plans is more difficult with employee size. For example, states may reset tax rates as a new employer when exiting a PEO.

Maggiore HR: The Best Choice for HR Outsourcing

If you're ready to take your HR management to the next level with HR outsourcing, consider scheduling a free consultation with Maggiore HR. Our experts are here to help you implement effective strategies that will promote a thriving workplace culture. Don’t wait—empower your organization to succeed by reaching out today!

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