When an organization grows in size, innumerable HR challenges come to the forefront. It is difficult for the staff members to handle payroll. They have to struggle with providing competitive benefits to attract the right talent within the organization. And it isn’t easy to cope with the dynamic compliance regulations. That is when the role of a Professional Employer Organization (PEO) comes into play.
What Is a PEO (Professional Employment Organization)?
A Professional Employment organization is an organization that partners with small and medium scale organizations to provide comprehensive HR services such as payroll processing, regulatory compliance, tax filing, recruitment, training and development, and other services. A PEO is an outsourced HR department providing access to expert yet affordable services.
Company’s Collaboration with a PEO
When an organization collaborates with a PEO, the organization continues its normal line of operations, employee functions, and responsibilities. At the same time, the PEO takes care of the HR-related operations such as payroll processing, tax remittance, etc.
From the employees’ perspective, the employees will see the PEO’s name on the cheques and other documents of HR communication.
Services Provided by PEO’s
Every Professional Employment Organization offers a different set of customized services according to the client’s requirements. The extensive services offered by PEOs are:
- Employee Benefits including medical, dental, or educational assistance
- Payroll Processing that includes payroll compliance and record maintenance
- Administration of Worker’s Compensation
- Compliance Assistance in sync with labor law and employee requirements
- In-house HR Administration
- Employee training and development
- Recruitment and hiring
- Strategic Planning in terms of attracting talent and managing HR costs.
Although a Professional Employment Organization offers a wide range of services, clients have access to the ones based on their needs, which could lower the PEO’s rate.
Drawbacks of Using a PEO
1. Loss of Control:
Even if the company employees are satisfied with the current organizational policies, but the PEO wants to change the current plans, there isn’t anything a company can do about it. It has to comply with the decisions of the PEO as it is the governing body of the organization.
2. Unexpected Changes:
Suppose the PEO decides that the organization it has partnered with is too much of a liability. In that case, the PEO has the right to shift the company to a higher-risk category, making its service price relatively higher, which is unaffordable for the organization.
3. Cash Flows:
A PEO may request payments from the partner company in the form of up-front cost, which may affect the partner’s company cash flow unexpectedly.
4. Potential Risk:
Although PEO is a co-employer of the organizational workforce, the organization still retains certain rights. It retains certain legal liabilities as an employer. If audited, the organization may face the wrath of penalties for employment responsibilities even if it collaborates with a PEO.
EOR – Replacement of PEO
If a business doesn’t want to be associated with a co-employment organization or refuses to outsource its entire HR function, collaborating with a company that provides EOR (Employment of Record) services may prove to be a better option.
A global EOR offers services similar to a PEO. But an EOR becomes a legal employer, unlike the co-employment arrangement in PEO. Global EOR solutions include handling payroll taxes, payroll compliance, administration of benefits, reporting unemployment claims, and other HR-related tasks.
(Also Read: 5 Things To Consider Before You Select A Global Employer Of Record)
What should You Opt for – PEO or EOR?
As the business expands across geographies, the employment laws and regulations become more complex and varied for companies operating across different geographies.
If the organization collaborates with a PEO, a company must establish a legal presence across every state or country where it has employees. However, if the company’s EOR is established across geographies, the company can legally employ workers in those states through the EOR.
PEO v/s EOR
A Professional Employer Organization serves as the co-employer of the organization and is utilized for an organization’s entire workforce. It shares the HR responsibilities and liabilities of an organization and can take over the entire range of HR functions. It provides services for a minimum of 5-10 employees. It works for an organization that has registered in every country or state where its employees exist.
The Employer of Record serves as a legal employer and assumes the responsibilities and liabilities of an organization. EOR takes over a portion of HR functions and can be used for the partial workforce. It provides services for a minimum of 1-5 employees. It allows companies to move to a different state or country without setting up a legal entity. Employment of Record handles worker’s compensation as well as unemployment claims.
You can choose a PEO or an EOR, depending on your needs and requirements. Understand your requirements thoroughly and make the right choice to avail of their services.