As HR outsourcing grows more popular, the number of HR outsourcing options has increased dramatically. Knowing when you should outsource HR is crucial to ensuring that your company has the support it needs at the time you need it.
The three primary options are a payroll processor, administrative services only, and Professional Employer Organization (PEO). Each of these options is vying for your business, but one of them can provide you with comprehensive support. It’s essential to understand the differences between these options before you choose which solution is right for you.
What is a Payroll Processor?
Payroll processing companies do exactly what it sounds like. They provide your company with payroll services only. This includes running your payroll and providing you with tax-related compliance.
Having a vendor do one specific task for your company may seem like a good idea. After all, they should be experts at that task. But what about when your company expands or needs more services? A payroll processor cannot handle any additional support for your business.
Besides that, a payroll processor does not take any liability for payroll errors, and you still hold responsibility for remitting taxes. Ultimately, using a payroll processor does little to save you time because you still have to review your payroll very carefully to ensure your vendor did not make any mistakes.
What is Administrative Services Only?
Another HR outsourcing option is administrative services only (ASO). These companies only provide you with support to administer your benefits and process your payroll. Some also provide compliance with HR-related laws.
However, you don’t see any cost savings by using an administrative services-only provider. These companies may try to sell you on reducing your time, and that’s how they provide you with cost reductions. In reality, however, your company is still liable for any mistakes made by an ASO. Much like a payroll processor, you will still need to review the work done by your vendor, limiting the time and cost savings you might see.
What is a PEO?
A PEO combines everything that a payroll processor and administrative services only provider does and goes well beyond. A PEO can provide your company with comprehensive HR outsourcing services and support.
With a PEO, you can have the payroll services offered by a payroll processor. However, with a PEO, they share liability for any mistakes. A PEO will also administer your benefits, including those required by law, like an administrative services-only provider. But with a PEO, they will also give you the ability to get better benefits at better rates.
Why are PEOs the Superior Choice?
PEOs provide comprehensive HR outsourcing services. Working with a best-in-class PEO will cost your company the same as it would for you to partner with a payroll processor or ASO.
When you partner with a PEO, you enter a co-employment relationship. This does not take away your ability to manage your company as you see fit and handle all day-to-day operations. What co-employment does allow, however, is your PEO to become the employer of record for your employees. This means they can provide benefits as though they were the actual employer.
This means that you get access to the PEO’s master benefits plan negotiated by experts using economies of scale. Through this process, you may be able to get access to better benefits, at better rates, than what you would have been able to get on your own. You can provide your employees with healthcare options both you and they can afford.
A PEO can also provide you with workers’ compensation support. Suppose you are a new company or have had workers’ compensation claims recently. In that case, a best-in-class PEO may be able to lower your premiums by letting you adopt their experience modifier, or e-mod, rate.
Your Most Comprehensive Option is a PEO
Instead of leaning on one vendor at a time to give you the support you need, you can consolidate your vendors into one comprehensive HR outsourcing solution with a PEO. Not all PEOs cost as little as a payroll processor or ASO, but a best-in-class PEO will cost the same as those other HR outsourcing options. Best-in-class payroll processors and ASOs may be able to match some PEO’s prices, but they cannot even come close to offering the same savings on benefits.
