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A professional employer organization (PEO) can provide valuable HR solutions. However, choosing the best HR outsourcing service is a challenging task. With so many PEO companies out there, how do you find one that suits your business needs?
When comparing PEO services, consider factors like cost, services offered, and market reach. This guide will help you select your business’s ideal HR support partner.
What is a PEO?
A professional employer organization provides all-inclusive, outsourced HR solutions tailored to meet various business needs. When a company partners with a PEO, they act as co-employers. The PEO and the employer share responsibility and liability for their co-employed staff.
PEOs offer a wide range of services, including:
- Payroll processing
- Payroll administration
- Employee benefits administration
- Employee training and onboarding
- Regulatory compliance
- Risk management
By leveraging a PEO, businesses can streamline their HR support and focus on their core operations and strategic goals. This partnership is especially beneficial for small and medium-sized businesses (SMBs) looking to provide competitive benefits and manage HR tasks without hiring a large in-house HR team.
How does a PEO work?
Don’t assume all PEOs offer the exact same services. Some provide comprehensive HR services, whereas others focus specifically on one or two key areas. You must determine which PEO services match your specific needs. Here are some of their most common offerings:
Compliance
PEOs typically have in-house experts on local labor and tax laws. A PEO can help ensure that your business complies with these laws and avoids penalties. These services are invaluable for companies with global teams because it’s difficult to stay on top of laws across many locations.
Employee onboarding
Onboarding new employees—especially in other countries—can be challenging. Some PEOs can help with the onboarding process. Your PEO may provide a checklist of forms the new employee has to fill out, steps you need to take as the employer, and other crucial details so you don’t miss anything.
Health insurance
Health insurance is one of the most essential benefits companies offer, but it’s also one of the most expensive. Many PEOs provide affordable access to high-quality health insurance plans. Working with a PEO means you don’t have to worry about losing top candidates due to insufficient health insurance benefits.
Payroll
A primary function of PEOs is to process and manage employee payroll. Some PEOs will even manage your company’s local, state, and federal payroll taxes.
Benefits
Because they work with many employers, PEOs can help your company provide premium employee benefits, such as dental coverage and retirement plans, at affordable prices. Your PEO will also manage employee enrollment and administer these benefits on your company’s behalf.
How to choose the best PEO service
If you decide to work with a PEO, there are a few questions to consider during your search. There’s no objective way to determine which PEO is the best. Instead, your goal should be determining what will suit your company’s needs. To do so, you must first understand those needs in detail. Consider the following questions:
- Does your company need to reduce the workload of its internal HR department?
- Is your company interested in hiring international workers? If so, in one country or several?
- Is your company worried about labor law compliance risks?
- Does your company want to improve its employee benefits to be more competitive?
Determine the most critical issues to your business when considering its current size and plans for future growth. For example, your internal HR department may be overrun with work, leaving you unable to keep up with all your administrative tasks. In that case, you should prioritize a PEO that handles various HR tasks.
Advantages and disadvantages of PEOs
Partnering with a professional employer organization offers several advantages, but it also has its share of drawbacks. Understanding these pros and cons will help you make an informed decision about your business’s needs.
Advantages of a PEO
- Compliance management: A PEO helps businesses comply with employment laws, handle medical leaves, ensure workplace safety, and comply with state regulations.
- Payroll tax compliance and risk mitigation: A PEO takes the hassle out of managing payroll taxes and oversees workers’ compensation and unemployment claims.
- Cost savings: PEOs offer affordable benefits and insurance that small businesses can’t independently. This reduces administrative costs and improves efficiency, leading to further savings.
Disadvantages of a PEO
- Reduced control: When you partner with a PEO, you relinquish some control over HR functions and decision-making, which can be difficult for some business owners.
- Lack of personalized attention: Depending on the PEO, you might not get that personal touch that an in-house HR team offers.
- Additional costs: Although there can be savings, the fees associated with PEO services add up, potentially offsetting the financial benefits.
What is a certified PEO?
In the United States, a certified professional employer organization (CPEO) is a type of PEO granted certification by the Internal Revenue Service (IRS). This certification indicates that the PEO meets specific financial, tax compliance, and other requirements set forth by the IRS. It provides an added layer of assurance and reliability for businesses.
To achieve CPEO certification, a PEO must fulfill the following criteria:
- Maintain a positive standing with the IRS
- Secure a surety bond
- Prove financial reliability and stability
- Adhere to specific employment tax obligations
In addition to IRS certification, CPEOs often uphold stringent standards set by other reputable organizations, such as the Employer Services Assurance Corporation (ESAC) and the National Association of Professional Employer Organizations (NAPEO). The primary difference between PEOs and CPEOs lies in their compliance with these strict guidelines.
Whether you work with a PEO or a CPEO, you should do your homework. Research cost and service offerings. Read through both positive and negative reviews online to get the whole picture. References can also help you determine whether a PEO or CPEO is a good fit for your business.
PEO alternatives
Besides using a PEO, two other popular global employment solutions for hiring international workers are opening a foreign entity or using a global employment platform like Oyster. Here is a rundown of PEO alternatives:
Opening an entity
The traditional route is opening an entity in the country where you want to hire workers. However, if you open an entity, your company will have to deal with the bureaucratic process. This process can drag on for months and be very costly. You’ll also be responsible for managing compliance with the labor laws in that location. It’s probably not worth opening an entity just to hire one or two employees from a particular country.
Human resources outsourcing (HRO)
Human resources outsourcing (HRO) allows companies to outsource some or all of their HR functions—services like payroll, benefits administration, recruitment, training, and compliance management. The company retains control over HR policies and decisions, and the HRO executes these functions according to the company’s guidelines.
Administrative service offering (ASO)
An administrative service offering (ASO) provides outsourced administrative support for HR functions without entering a co-employment model like a PEO. ASOs handle payroll processing, benefits administration, and compliance tasks, while the employer maintains control over their workforce and HR policies. This solution offers flexibility and can be customized to fit a business’s unique needs.
Employer of record (EOR)
An employer of record (EOR) is a third-party organization that legally employs your workers, handling all employment-related tasks and liabilities such as payroll, taxes, and benefits administration. Unlike a PEO, an EOR acts as the sole legal employer. EORs are ideal for companies looking to expand quickly or manage employees in a new location.
Oyster offers global EOR services that improve the traditional model by providing strategic partnerships and expert insights, ensuring compliance, and helping you attract and keep top talent worldwide.
Global employment platform (GEP)
A global employment platform (GEP) is a cloud-based software solution that helps companies scale their teams and hire remote workers from anywhere in the world. Your HR team can use the GEP to manage compliance and payroll, onboard new international hires, and tailor your benefits to each location.
Benefits of using a global employment platform
Choosing a global employment platform offers companies many benefits, such as:
- Hiring employees from all over the world
- Easily calculating the cost of engaging talent
- Onboarding new talent with ease
- Offering employee benefits tailored to each location
- Ensuring legal and tax compliance wherever you have global employees
Global employment platforms are instrumental if you want to hire in multiple locations. Instead of setting up a new entity or finding a new PEO whenever you hire someone in a new location, you only need one GEP to operate worldwide. A global employment platform is the only solution that allows companies to hire people worldwide through a single platform.
PEO, GEP, EOR, HRO, ASO—there’s a lot to remember! Though it might seem complex, understanding how they differ can help you determine the best HR solutions for your business needs.
Our recommendation? Scale a global team with the support of Oyster’s global employment platform.
About Oyster
Oyster is a global employment platform designed to enable visionary HR leaders to find, engage, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.
Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.
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