Which Type of HR Outsourcing Company is Right for You?

By: Insperity Staff
February 4th, 2011

Amid the many acronyms business owners encounter – FMLA, FICA, HIPAA and COBRA to name a few – two are designed to ease the burden of business owners.

PEO (professional employer organization) and HRO (human resource outsourcer) companies remove the need for internal human resources, allowing managers more time to conduct business. Employees can be the cornerstone of an enterprise. They can also be an enormous liability for employers grappling to adhere to the myriad of laws and regulations.

If uncertainty about how the Family and Medical Leave Act (FMLA) would apply to your newly-hired administrative assistant who has decided to adopt a child from Russia is keeping you awake at night, or if you simply prefer not to spend a portion of your week interpreting health insurance plans, outsourcing to a PEO or a HRO may be the answer.

Though the two perform similar functions as a human resources department, HROs are outsourced and completely independent from a client’s business and PEOs function as a partnership agreement.

“The choice is basically a function of what the customer is most comfortable with,” says Jeff Stinson, president of California-based Global Human Resources Outsourcing.

Under a PEO contract, a “co-employer relationship” is created where the PEO and client both employ the workers, allowing them to share liabilities and responsibilities. Clients outsource their human resources to the PEO and maintain control of their companies, while the PEO provides human resources services such as employee benefits, payroll administration and workers’ compensation.

The average PEO client has 19 worksite employees according to data compiled by the National Association of Professional Employer Organizations (NAPEO).

An HRO provider also handles employment-related issues for a client but does not share accountability with the employer. The HRO can provide a full scope of functions for the company, everything from employee acquisition to payroll, but does so as a third party.

Companies opting for HROs vary in size from one to thousands of employees and, like PEOs, service a wide range of industries, Stinson says.

“A lot of times the choice is more emotional than rational; they built their company and don’t want to relinquish any part of it under a PEO arrangement,” he says.

Range of services and associated costs also vary greatly and are typically tailored to meet a company’s needs.

As employee-related issues such as health insurance become more complex, statistics indicate that more small business owners are opting to co-employ. NAPEO estimates the PEO industry increased $5 billion in 2008, claiming $68 billion in gross revenues.

One potential concern for business owners in a PEO arrangement is loss of the ability to make unilateral decisions in certain employee-related matters such as termination, Stinson says. But typically a PEO is only involved in a firing to ensure that the process is handled in a professional manner that won’t cause repercussions.

“Terminating employees is your greatest liability,” Stinson says. “The idea behind hiring a PEO or HRO is that you can let someone else worry about the details and spend your time running the business.”

Did you find this post helpful?  Yes  No

We appreciate your feedback.

Please share.

Why?  Please select one of the following options:

  Too general
  Not relevant to my industry

  Not well presented
  Information is out of date

  Not what I was looking for
  Other

Please tell us how we can improve our content.
Thank you.

Captcha Fail.

Send

Tweet

You may also be interested in:

		Why You Need an HR Specialist A capable Human Resources (HR) specialist is an invaluable asset to any company. HR specialists can help create and nurture.. more »
		What the Yahoo Scandal Can Teach Us About Resume Fraud Even large companies with deep pockets and vast resources can fall prey to resume fraud if they are not diligent in their screening processes... more »
		Trend Watch: Employee Health Benefit Enrollment Continues To Drop If Americans are required to buy health insurance or face penalties, is your small business ready to absorb the costs?.. more »