A PEO (Professional Employer Organization), also known as an outsourcing solution, is a third-party co-employment partner that handles HR duties, such as payroll, benefits, tax filing, workers’ compensation, compliance, and risk management.
Traditional HR means having an internal HR department directly under the company’s control. This department manages hiring, payroll, benefits, compliance, policy creation, employee relations, and culture development for the company.
The differences between PEO and traditional HR are employer status, HR support, compliance and risk, cost structure, access to benefits, scalability, cultural and operational control, and technology access. The similarities between a PEO and traditional HR are employee management support, compliance management, payroll administration, HR policy guidance, and benefits administration.
Some of the best services provided by a PEO are workers’ compensation management, recruitment and onboarding, payroll processing and tax administration, and compliance and risk management, while those provided by traditional HR are administration and HRIS systems, employee onboarding and documentation, and performance management.
The main benefits provided by a PEO are company growth, HR expertise, retirement plans, and increased employee engagement. The benefits that traditional HR provides are direct control over HR processes, quick responsiveness and availability, and understanding of company culture.
Despite these benefits, there are some disadvantages of a PEO, which include loss of full control, shared liability, flexibility concerns, and employee concerns, while the disadvantages of traditional HR are limited expertise, high employee turnover, higher cost, and time management challenges.
What is a PEO?
A PEO (Professional Employer Organization) is an outsourced solution that offers HR services to a client business through a co-employment agreement. This outsourced model serves as a co-employer and handles different HR functions, such as payroll, benefits administration, compliance management, and employee recruitment.
How does a PEO work?
A PEO works under a co-employment model and becomes the employer of record of the client business for tax and benefits purposes. This third-party service provider manages administrative responsibilities, like payroll processing, risk management, and HR consulting, under its own EIN (Employer Identification Number). The client company maintains control over routine operations, which include performance management, employee management, and product development.
This HR service provider becomes the administrative employer in a co-employment partnership, while the client remains the worksite employer. This means both share legal responsibilities for complying with labor laws, such as wage rules, working hours, and safety standards.
What is traditional HR?
Traditional HR is a reactive and mostly administrative approach to personnel management, as it handles hiring, firing, and payroll. It only implements company policies when issues arise, like violations, resignations, and employee disputes, rather than creating active strategies to avoid them.
How does traditional HR work?
Traditional HR works by using manual, paper-based processes to manage administrative tasks. It uses tools like spreadsheets, filing cabinets, and in-person meetings to handle important functions such as attendance monitoring, performance reviews, and policy administration.
Traditional HR is a top-down and objective approach, where senior management makes decisions about recruiting, compensation, benefits, and compliance. The employees’ engagement in decision-making is restricted, and there is limited involvement in the overall business strategy.
What are the differences between a PEO and traditional HR?
The differences between a PEO and traditional HR are employer status, HR support, compliance and risk, cost structure, access to benefits, scalability, cultural and operational control, and technology access.
| Differences | PEO | Traditional HR |
| Employer status | Co-employment | Direct employment, the company is the sole employer of its staff |
| HR Support | Provides outsourced HR services | In-house HR staff |
| Compliance and risk | Takes responsibility for compliance and risk | The company handles compliance and risk internally |
| Cost structure | Fee-based or a percentage of payroll | Fixed internal costs |
| Access to benefits | Offer benefits access through group purchasing power | Limited negotiating and a basic benefits plan |
| Scalability | Highly scalable for company growth | Scaling requires hiring more staff and systems |
| Cultural and operational control | Shared control | Full control over HR policies, culture, and employee management |
| Technology access | Provides integrated platforms for payroll, benefits, and compliance | Require internal HR technology |
Employer status
Employer status means the classification of an individual’s working relationship with an employer, who establishes their rights, responsibilities, and eligibility for benefits.
The PEO operates under a co-employment model in which the client monitors daily operations and the PEO serves as the employer of record for taxes and compliance.
The business manages all employment duties internally, and is the only legitimate employer, in traditional HR, which also includes liabilities for legal and financial purposes.
HR support
HR support is the services and advice offered to help businesses accurately manage their workforce.
This third-party service provider offers fully outsourced human resources services, which include payroll, benefits, and compliance, supported by a group of HR professionals.
The company’s internal HR team manages services in traditional HR, such as payroll, hiring, compliance, and benefits administration. These duties are performed by internal tools like spreadsheets or manual-based processes, and sometimes by outside consultants for specialized tasks like training or legal compliance.
Compliance and risk
Compliance and risk mean a company complies with laws, rules, and standards related to employment, while identifying, monitoring, and reducing risks that damage the company’s reputation and workers’ well-being.
A PEO reduces the legal and financial risks for the client company by performing different compliance responsibilities, such as payroll taxes, wage and hour regulations, workers’ compensation, and benefits administration.
Traditional HR places the whole burden of compliance completely on the company, which includes tax returns and labor law regulations.
Cost structure
Cost structure means the overall arrangement of an organization’s fixed and variable costs, which together determine the total cost of a business’s operations.
This outsourced model offers bundled HR services that are covered by a service fee based on a percentage of total payroll or a fixed cost per employee.
Traditional HR costs include internal HR salaries, software subscriptions, and administrative personnel. These overheads are fixed, even when the number of employees fluctuates.
Access to benefits
Access to benefits is the availability and ease with which workers receive their employee benefit programs, such as health insurance and retirement plans.
PEOs negotiate better insurance rates for all of their clients, which reduces the cost of Fortune-500-grade packages and allows them to offer benefits similar to those of large companies. These include retirement plans like 401(k), health, dental, vision, and life and disability insurance.
Traditional HR involves the business negotiating benefits directly, alone, or with brokers, which results in smaller contracts. These plans are more costly per employee, less flexible to meet the demands of a large workforce, increase expenses, and provide less customizable alternatives.
Scalability
Scalability is the ability of an organization to expand or change effectively without reducing performance or requiring changes in its structure.
This third-party service provider offers a scalable HR structure with package services that automatically increase with a company’s size, and handle hiring, payroll, benefits, compliance, and onboarding without the need for extra internal HR personnel or training. This helps businesses focus on expansion rather than managing HR functions.
Scaling traditional HR requires hiring more HR people, buying or updating software, which is expensive and time-consuming. Large scale companies require costly HR operations, so manual processes become ineffective at a large scale.
Cultural and operational control
Cultural and operational control is the level to which an organization establishes the workplace for its employees and makes sure that daily activities match with company-specific objectives and culture.
The client company maintains control over routine operations, employee management, and the company’s culture, while HR procedures and policies conform to the PEO’s systems.
Traditional HR takes total control over HR policies, practices, and employee relations, which are created and managed inside the company. This internal control allows HR teams to establish company culture from hiring and onboarding to performance reviews and departure interviews. This also helps conform to business values and promotes company cultural growth.
Technology access
Technology access is the availability and implementation of integrated HR technology platforms that help in data-driven decision-making, reduce manual labor, and simplify HR operations, such as benefits portals, payroll systems, and analytics tools.
This outsourced HR model provides integrated HR platforms as part of its payroll, benefits, and compliance monitoring services. The client company no longer needs to maintain different HR systems, as their platforms are made to grow with companies, which also improve data connectivity and productivity of workforce operations.
Traditional HR requires businesses to find, set up, and manage their own HR software system, which balances different systems for performance management, payroll, compliance, and hiring. These systems slow down HR procedures, decrease productivity, increase expenses, cause integration errors, and difficulties in data collection.
What are the similarities between a PEO and traditional HR?
The similarities between a PEO and traditional HR are employee management support, compliance management, payroll administration, HR policy guidance, and benefits administration.
Employee management support
Employee management support is the use of procedures and processes that help to regulate, direct, and manage staff members during every stage of their employment duration, from hiring, onboarding, training, performance management, to dispute resolution, retention, and offboarding.
The PEO offers complete employee management support through a co-employment model by using professional HR teams and well-planned strategies, which include onboarding, payroll, benefits, compliance, performance tracking, and dispute resolution. This makes it possible to manage employees effectively without burdening the company’s internal resources.
Traditional HR uses internal procedures and internal HR teams to manage every aspect of employee management, from hiring and onboarding to performance reviews and policy creation. This offers direct employee interactions and a great cultural fit, but it requires more time, knowledge, and administrative costs.
Compliance management
Compliance management is the ongoing process of creating, monitoring, and implementing policies and processes to guarantee that a company complies with all relevant laws, rules, and contractual commitments from privacy and industry standards to employment and safety regulations.
Both models are in charge of making sure the company complies with rules related to employment regulations, which include governing tax returns, wages, worker safety, and benefits. PEOs manage payroll tax filings, workers’ compensation coverage, benefits compliance, and ongoing regulatory updates through specialized HR teams under a co-employment structure. Traditional HR teams centralize compliance management by implementing compliant policies and procedures, such as conducting audits and staying up to date with employment laws.
Payroll administration
Payroll administration is the process of accurately managing and calculating employee wages, withholding, and sending required taxes, and keeping records according to legal standards.
This outsourcing model manages all aspects of payroll administration, which includes tax filings, deductions, direct deposits, and reporting using their own EIN. They also provide tax liability coverage and compliance monitoring as part of the service.
Traditional HR uses an internal HR team (or outside consultants) to manage payroll procedures, monitor tax filings, keep payroll records, and guarantee legal compliance using the company’s EIN. The company is also solely accountable for any legal mistakes or fines.
HR policy guidance
HR policy guidance means expert advice and resources offered to help organizations in creating, implementing, and maintaining policies according to company values and legal responsibilities.
This third-party service provider offers clients standardized policy guidelines to create compliant employee handbooks, which offer advice on complex HR situations, and revise policies in response to regulatory changes.
Internal HR departments create guidelines that are specific to the company’s goal, culture, and growth objectives. They monitor training, guarantee uniform implementation, and update policies to show the changing needs of the business.
Benefits administration
Benefits administration is the process of planning, implementing, and monitoring employee benefit plans, such as PTO (Paid Time Off), retirement, dental, vision, and wellness programs, to make sure they are competitive, compliant, and according to the needs of both employees and company objectives.
These models monitor the entire employee benefits cycle, which includes enrollment, administration, and communication, to guarantee that employees receive the health, retirement, and insurance benefits.
PEO provides access to a wide range of benefit programs, such as health and retirement plans, by grouping employees from different companies to secure better rates and more attractive options. They also manage routine supplier communications and enrollment, which reduces the client’s administrative burden.
Traditional HR manages enrollment dates, processes claims, communicates plan changes, and engages in direct provider negotiations to internally administer benefit programs. They guarantee that benefits are according to the business regulations and compliance requirements.
What are the services provided by PEOs?
The services provided by PEOs are workers’ compensation management, recruitment and onboarding, time and attendance tracking, payroll processing and tax administration, and compliance and risk management.
The services provided by PEOs are listed below.
- Workers’ compensation management: Workers’ compensation management is the administration of an employer’s workers’ compensation program, which includes managing claims, compliance, and cost control while making sure that sick or injured personnel receive proper medical attention, lost wage benefits, and rehabilitation. The PEO gives employees access to workers’ compensation with affordable insurance rates because of the group purchasing power. It manages the claims processing process, which includes reporting injuries and liaising with insurance companies and healthcare providers. PEOs also help reduce the frequency and expenses of injuries by using return-to-work plans and workplace safety measures.
- Recruitment and onboarding: Recruitment is the process of hiring skilled candidates in the company, while onboarding is the process of preparing new hires through orientation and training to fit the job role. PEOs save hiring time and expense by helping the client company with job description writing, posting positions, screening applicants, and even running background checks. They also provide complete onboarding support to guarantee productivity, compliance, and a positive new hire experience.
- Time and attendance tracking: Time and attendance tracking is the organized process of keeping track, documenting, and controlling workers’ working hours, breaks, and absences to guarantee accurate payroll, compliance with labor laws, and productive workforce planning. This outsourced solution provides correct time and attendance solutions, which include using technological devices such as web portals, smartphone apps, and biometric clocks to accurately record employee hours. These systems create real-time information, handle overtime and break policies, and help companies avoid mistakes and compliance issues.
- Payroll processing and tax administration: Payroll processing and tax administration mean thorough handling of employee benefits and related tax liabilities, to guarantee timely, accurate, and compliant payments to workers for their labor. PEOs handle wage calculation, direct deposit processing, and checks, which include overtime and bonuses. They also issue W-2s and 1099s forms, and handle deductions such as garnishments and benefits. PEOs perform legal responsibilities and reduce audit risk for clients by handling multi-state withholding, filing federal and state returns (Form 941, 940, unemployment, etc.), and submitting payroll taxes under their own EIN.
- Compliance and risk management: Compliance and risk management means the ongoing process of making sure a business complies with all labor laws while also identifying and reducing risks to its operations, reputation, and finances. PEOs make sure companies continue to comply with labor laws such as the FLSA (Fair Labor Standards Act) and OSHA (Occupational Safety and Health Administration) through regular audits, policy revisions, and corrective action plans. They also share HR risks and establish safety and return-to-work programs to reduce the client’s exposure to lawsuits, penalties, and fines.
What are the services provided by traditional HR?
The services provided by traditional HR are administration and HRIS systems, employee onboarding and documentation, performance management, absence and leave management, and training and development.
The services provided by traditional HR are listed below.
- Administration and HRIS (Human Resources Information Systems): Administration and HRIS systems are specialized software platforms used to manage HR processes like payroll and employee data management. Traditional HR teams use paper-based systems or digital tools to handle time tracking, benefits administration, and personnel records. Internal HR employees of mature organizations are responsible for implementing, integrating, maintaining, and training the HRIS (Human Resources Information System) to collect employee data, automate workflows, and create reports.
- Employee onboarding and documentation: Employee onboarding and documentation is the process of introducing new personnel into a company and compiling their internal and legally required paperwork to guarantee compliance and quick onboarding. Traditional HR teams handle onboarding by developing a careful, multi-step procedure as they collect important paperwork, such as employment contracts, tax and direct deposit forms, NDAs (Non-Disclosure Agreements), and benefits agreements, perform background checks, hold orientation sessions, and mentor new hires through training. They maintain internal checklists and guarantee legal compliance by filing and organizing all required documentation with the use of paper files, spreadsheets, and in-house managed digital storage.
- Performance management: Performance management is the process by which a company establishes clear expectations, monitors growth, and encourages improvement of employee performance to conform to business objectives. Traditional HR supports performance management through the development and administration of an organized internal procedure for reviewing and improving worker performance. HR departments help managers communicate objectives, develop performance targets that match the company’s goals, and conduct regular or annual performance assessments. These assessments show areas for improvement, rate achievements, and connect results to promotions or disciplinary measures.
- Absence and leave management: Absence and leave management is the process by which employers monitor, manage, and control employee absences and leave, to maintain productivity, support worker well-being, and ensure legal compliance. Traditional HR teams create and monitor leave policies, collect and handle leave requests, monitor balances, such as PTO (Paid Time Off), sick days, and FMLA (Family Medical and Leave Act), and ensure compliance with company-specific, state, or federal laws. They also manage documents manually or through separate systems, which include spreadsheets, HRIS modules, and email, to track absence patterns and maintain operational stability and legal compliance.
- Training and development: Training and development mean organizing learning programs to improve employees’ present job skills and prepare them for future responsibilities within the company. Traditional HR teams provide training and development through the identification of skill gaps in employees and the implementation of structured learning programs to improve their abilities. These programs involve leadership development seminars, e-learning, mentorship, or live workshops.
What are the benefits of a PEO?
The benefits of a PEO are company growth, HR expertise, retirement plans, time-saving, cost-saving, and increased employee engagement.
Company growth
Company growth is the process through which a business grows over time in terms of recruiting, market presence, earnings, profitability, and operational productivity.
A PEO facilitates business growth by simplifying HR procedures, which include reducing administrative burden and providing scalable support. They manage HR tasks like payroll, benefits, and compliance for businesses to use their resources on core activities like product development, sales, and market expansion.
Companies that use a PEO expand 7% to 9% quickly because they are more reliable, reduce risk, and have access to large company-level HR services, according to an article titled “Facts about Professional Employer Organizations (PEOs)” published by the NAPEO (National Association of Professional Employer Organizations).
HR expertise
HR expertise is the thorough understanding, competence, and abilities in human resources that allow employers to create, implement, and develop workforce management strategies that meet company objectives.
PEOs give their clients access to HR expertise that small and medium-sized businesses are unable to handle internally on their own. They offer expert knowledge in workforce management, compliance, compensation, benefits, and workplace training. They also facilitate the creation of employee handbooks, training plans, employee relations management, labor law understanding, and performance management through pre-existing models and HR technology platforms.
Retirement plans
Retirement plans are employer-sponsored programs that are carefully planned for workers in their retirement, and these include retirement savings and income benefits according to ERISA (Employee Retirement Income Security Act) regulations.
PEOs provide access to MEPs (Multiple-Employer Retirement plans) by grouping workers from different client companies, which are set up as 401(k) plans. PEOs handle legally mandated responsibilities, such as Form 5500 filings, non-discrimination tests, audits, and ongoing ERISA compliance, so client companies are able to access better options at reduced costs, which also facilitates clients of legal and administrative burden.
PEOs also provide small businesses with access to high-quality, affordable retirement plans. They provide resources, instruction, and financial advice to make sure staff members are aware of their alternatives and make wise savings decisions.
Time-saving
Time saving means reducing the amount of time needed to perform business operations.
This outsourcing model automates and simplifies HR operations, such as payroll, onboarding, benefits administration, compliance, and time tracking, which also reduces manual labor and administrative time. PEOs save internal resource costs through professional teams, self-service technologies, and digital HR platforms, and allow companies to focus on core strategy rather than daily HR tasks.
Cost saving
Cost saving means reduced expenses, which are achieved by increasing productivity or contracting out services to less expensive suppliers.
This third-party service provider saves the client company’s costs by offering outsourced services as compared to managing payroll and HR internally, which also reduces unnecessary administrative expenses.
They also provide an average ROI (Return On Investment) of 27.2%, which is similar to about $1,775 saved per year per employee as a result of grouping productivity improvements with reduced service costs, according to an article titled “The ROI of Using a PEO” published by the NAPEO (National Association of Professional Employer Organizations).
Increased employee engagement
Increased employee engagement means employees who are positively dedicated to their work and the company’s objectives.
PEOs help create a more engaged staff through simplifying the HR process and providing smooth onboarding, accurate payment, premium benefits, and quick HR support, which improves employee satisfaction and trust.
They also improve workplace culture by offering wellness programs, professional development opportunities, feedback channels, and generous benefit packages, which promote a positive workplace and reduce the chances of disputes among co-workers.
What are the benefits of traditional HR?
The benefits of traditional HR are direct control over HR processes, quick responsiveness and availability, understanding of company culture, customization and flexibility, and strong employee relations.
Direct control over HR processes
Direct control over HR processes means the authority and control a business has in establishing, implementing, and monitoring every aspect of its human resources, from system management and employee relations to policy creation.
The business has complete internal control over HR procedures in a traditional HR setup. Internal HR employees manage and monitor every decision, from creating policies to implementing disciplinary measures, to make sure that HR processes closely match and support the organization’s culture and goals.
Quick responsiveness and availability
Quick responsiveness and availability mean an HR’s ability to respond to client or employee questions on time, handle workplace issues, and be reachable through different communication channels.
Internal HR departments work like a full-service support team to provide quick, individualized responses to the demands of employees. They handle service-level requirements to make sure workers do not wait for support, as HR responds to emails immediately.
Traditional HR is easily available through channels, such as in-person meetings, dedicated HR hotlines, email, and chat, to deliver quick and reliable answers for solving issues, like policy enquiries or payroll revisions.
Understanding of company culture
Understanding of company culture means knowing a company’s values, practices, and policies for employee interaction and the requirements to perform work.
Traditional HR teams can establish and maintain company culture through active communication, onboarding, and policies with the company’s core values. They achieve this because of having a thorough awareness of the company’s practices, values, and rules. They also make an effort to match every aspect of daily operations, such as hiring, training, performance reviews, and awards, to maintain cultural uniformity as the business expands.
Customization and flexibility
Customization and flexibility mean the ability to customize services, benefits, and procedures to meet the particular requirements of every company while maintaining the flexibility to adjust as the company grows.
Traditional HR makes it possible to manage employees and benefits in a customized and flexible manner because internal teams adjust rules and procedures to meet the unique demands of each employee and team.
This personnel management, for instance, provides specific benefits, such as flexible scheduling, mental health support and consultation programs, and wellness allowances based on the choices or trends of the workforce to improve employee satisfaction and retention.
They also quickly create policies according to changing working situations, such as implementing hybrid models or flexible hours, to meet the needs of employees or business requirements without depending on a supplier package.
Strong employee relations
Strong employee relations mean a strategic process of establishing, managing, and maintaining strong connections between employees and the organization to promote trust, engagement, and communication in the workplace.
Traditional HR promotes positive connections between management and staff to guarantee that employee problems are solved quickly and fairly. The personnel administration implements fair policies and reliable dispute resolution to improve productivity, reduce turnover rates, and the number of absentees from work. This positive relationship-building results in increased employee engagement, retention, and morale.
What are the disadvantages of a PEO?
The disadvantages of a PEO are loss of full control, shared liability, flexibility concerns, employee concerns, and dependence on a third-party provider.
Loss of full control
Loss of full control means a company’s control over HR services is reduced as they are also managed by an external support.
PEOs use their established HR systems, such as standardized payroll, benefits, and compliance procedures, which limit a business’s control to change those systems. Client businesses find it challenging to implement specific or separate HR rules, which interfere with operational responsiveness, under the PEO’s agreements.
Shared liability
Shared liability means a legal arrangement in which two or more parties share responsibility for paying a debt, loss, or legal duty. Each party is held accountable for the full responsibility or only their equal share, depending on the terms of the agreement and any applicable laws.
Both the business and the PEO are legally responsible for ensuring compliance and employment regulations, such as payroll taxes, workers’ compensation, and employment-related claims, when they enter into a PEO arrangement. This shared duty exposes the client to risk in case of legal violation, even when the PEO makes an error or has gaps in insurance coverage.
Flexibility concerns
Flexibility concerns mean the limitations or difficulties that a business faces because it relies on a standardized, provider-managed system.
This outsourced solution provides standardized payroll, benefits, and compliance systems that are difficult to change to match internal company regulations or cultural standards. The client company is unable to select its own insurance companies while working with a PEO.
The PEOs choose the suppliers and have the power to change them without consulting the company, so the client company is also not allowed to directly negotiate or customize benefits. This HR outsourced solution has an impact on routine HR duties like hiring, disciplining employees, and implementing policies, which also reduces the company’s direct control.
This co-employment agreement between the PEO and the client company limits a business to adopt new processes, react quickly to changes, or keep complete control over the HR operations, such as recruiting and onboarding, and policy creation.
Employee concerns
Employee concerns mean workplace problems, dissatisfaction, and difficulties that an employee faces or believes are present in their employment.
The client business’s employees become confused about the identity and responsibility of their employers when they partner with a PEO. This third-party services provider becomes the employer of record for tax and benefit purposes related to the employees. They become unsure of their true employer as a result of this agreement, particularly about company policies, management, and decision-making.
This co-employment setup affects employee engagement and trust, which also results in a disconnection between the client company and its workforce. The PEO handles the majority of HR tasks, so employees become confused about sharing their complaints, which involve workplace disputes or management issues. These issues negatively impact employee morale, reduce productivity, and limit the growth of the company.
Dependence on a third-party provider
Dependency on a third-party provider is a situation in which a business relies on outside support to perform routine HR tasks, such as payroll administration and benefits administration.
The client businesses use a PEO and give this outside supplier control over core HR tasks, which include payroll, benefits, and compliance. This reduces a company’s control over the management of these tasks because a third party is responsible for handling them. This dependency also means that any delay from PEO, such as payroll mistakes or noncompliance, has an immediate effect on the company’s productivity and its workers.
What are the disadvantages of traditional HR?
The disadvantages of traditional HR are limited expertise, high employee turnover, higher cost, time management challenges, and administrative burden.
Limited expertise
Limited expertise means a lack of detailed understanding, specialized abilities, or experience in a given industry.
Traditional HR departments lack the specific expertise, knowledge, and data-driven insight required in business. This personnel management is overburdened with routine duties, which take most of the time and give less opportunity for creativity or strategic knowledge.
Traditional HR makes slower and less informed judgments by depending on out-of-date information in the absence of real-time data. Companies find it challenging to scale HR functions with competence or make changes due to the fixed structures and basic skill sets of traditional HR teams.
High employee turnover
High employee turnover is a situation in which many employees leave their jobs in a company within a specific period and duration and their positions need to be replaced.
Traditional HR involves a high turnover rate for companies as it does not offer competitive employee premium benefits, and there is a lack of opportunity for individual growth. The personnel management spends a lot of time onboarding, processing exits, and recruiting when the turnover rate is high in the company. Resources are spent on these recruiting operations, which results in a lack of strategic HR initiatives.
Experienced employees also leave their jobs, which means the company no longer benefits from their skilled knowledge and expertise. The new staff training becomes challenging as time, resources, and money are spent to familiarize them with company operations. This also reduces productivity because of training costs and hiring fees. Continuous turnover also affects team unity, decreases morale, and makes the company less reputable to fresh talent.
Higher cost
Higher cost means a situation in which more money is required than average or expected.
Traditional HR management also results in higher costs because it uses outdated and manual processes, paper-based systems, and reactive decision-making that require more money as compared to automated processes.
These outdated techniques cost more in areas like labor, administrative resources, recruiting and onboarding, processing payroll, managing compliance, and handling employee data. A lack of automation in personnel management means companies have to hire more staff or external services, which results in rising costs without improving operational efficiency.
Time management challenges
Time management challenges are a situation in which an individual faces difficulty in completing work, which also involves difficulty in accurate planning and setting priorities.
Traditional HR management involves manual and routine operations, such as data input, documentation, and unintegrated processes, which consume time. This also limits HR professionals’ ability to concentrate on important tasks like employee engagement, company growth, and employment claims.
Poor time management processes include being overburdened with daily tasks, slow response to employee or operational issues, and missed deadlines, which are caused by a lack of automation and outdated tools.
Administrative burden
Administrative burden means the challenges people have when dealing with administrative procedures, such as a large amount of paperwork or regularity difficulties.
Traditional HR management relies on manual paperwork, separate systems, and routine procedures, such as data entry, employee file maintenance, updating records, managing contracts, and employee benefits, which require much time for HR professionals and leave less time for strategic work.
Employees and HR personnel become frustrated by these administrative difficulties, which result in errors in payroll, attendance records, record keeping, and also reduce productivity.
How to choose between a PEO and a traditional HR model?
To choose between a PEO and a traditional HR model, assess your business needs, company size, and growth stage, budget, customization, company culture, and employee management.
Start with assessing your business needs, select a PEO model if your company needs to simplify HR processes, such as payroll administration and employee benefits administration, premium benefits support, or strategic analytics. PEOs are particularly helpful for businesses entering new markets or those without an expert HR structure. Use a traditional HR model as it is ideal for businesses with complex or specialized HR requirements, large levels of customization, or that require direct control over all HR operations.
Determine company size and growth stage when choosing the model. Choose a PEO because it is a perfect fit for fast-expanding companies or small to medium-sized businesses that want scalable HR support without adding more personnel. Select a traditional HR because it is better for stable companies with well-established HR procedures or larger organizations with the resources to keep an internal HR staff.
Carefully consider the company budget when choosing a personnel management and a PEO. Select the outsourced service provider as it offers cost-effective solutions for smaller companies by grouping resources to negotiate better insurance rates for benefits and HR services, which results in reduced operational costs compared to hiring a full HR staff. Use traditional HR management, but it requires a larger budget for salaries, training, and HR systems, which are justified for businesses needing to create HR strategies and greater internal control.
Determine the level of customization when selecting a model. Use a PEO model as it provides expert resources, but limit customization. It also offers standardized policies and procedures, which limit the employer’s control over HR decisions. Select a traditional HR model, as it allows full control over HR functions and provides flexibility in creating HR policies, but it requires more time, resources, and expertise.
Understand company culture and employee management when choosing an HR model. Choose a PEO when a company wants to outsource HR operations, but it provides less direct interaction with the business culture. This sometimes results in slower problem-solving times and less individualized employee experiences. Use traditional HR management because it is well-established within the company, and allows customized HR strategies that strongly relate to business values and promote the company culture.
What are other HR outsourcing models to consider beyond PEO and traditional HR?
The other HR outsourcing models to consider beyond PEO and traditional HR are ASO (Administrative Service Organization), HRO (Human Resources Outsourcing), EOR (Employer of Record), and BPO (Business Process Outsourcing).
ASOs (Administrative Service Organizations) offer HR support, which includes payroll, benefits administration, and compliance support, without forming a co-employment agreement. The company still has complete control over hiring decisions and is the only employer of record.
Businesses looking to reduce administrative burden and simplify operational processes use ASO while maintaining internal control and cultural uniformity.
HRO (Human Resources Outsourcing) performs HR tasks for businesses, such as hiring, training, and performance management. These services are flexible, so businesses select an a la carte strategy to satisfy specific requirements. This model is used by companies wishing to outsource specific HR functions or those having internal HR workers and need specialized support.
EOR (Employer of Record) manages payroll, benefits, and regulatory issues, and is the legal employer for tax and compliance purposes. This is particularly helpful when hiring in international markets for businesses growing globally or using remote workers in different jurisdictions.
BPO (Business Process Outsourcing) is the strategic practice of partnering with outside service providers to handle particular business operations and functions that support an organization’s core activities. Companies are under pressure to simplify their processes and be competitive in a global market. BPO shares particular business tasks to qualified outside partners who complete them more quickly and affordably.
What is the goal of PEO?
The goal of PEO is to provide complete HR support to businesses, particularly small and medium-sized businesses, by serving as a co-employer. The PEO allows businesses to outsource different HR functions, such as payroll and tax administration, benefits administration, and compliance management.
What is the difference between a PEO and ASO?
The difference between a PEO and ASO is that PEO works under a co-employment agreement to provide HR services and becomes the employer of record for tax and benefit purposes, while sharing liabilities with the client. The ASO is an HR service provider and manages HR functions without taking on employer responsibilities. The client is responsible for legal and regulatory duties.
Does a PEO replace an HR team?
No, a PEO does not replace an HR team, but it helps the HR department by managing administrative duties like payroll, benefits, and compliance, and allows the internal team to focus on strategy, culture, and employee engagement. PEO in HR helps companies in scaling HR functions by performing routine administrative operations.
How to tell if a company is a PEO?
To tell if a company is a PEO, check its legitimacy as they are certified by the IRS (Internal Revenue Service), CPEOs, or accredited by organizations like ESAC (Employer Services Assurance Corporation). Review their service agreements and confirm if they file taxes on behalf of the client company using their own EIN (Employer Identification Number).
Is a PEO a good fit for small businesses?
Yes, a PEO is a good fit for small businesses as they provide them access to company-level HR services, benefits, and compliance knowledge, which they are unable to receive on their own. PEO for small businesses allows them to focus on income-producing operations while outsourcing routine HR tasks.
