The Difference Between PEO and Staffing

By: First Union | Date:

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The Difference Between PEO and Staffing

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Many employers have used both a Professional Employer Organization (PEO/) as well as an Employee Staffing (Staffing/) company. And while the two do share some similarities there are some key differences in using these services in terms of what they entail, and particularly the impact on Human Resources. Below we provide a summary and look at the differences between them.

Similarities and Differences

Both PEOs and staffing companies do offer such benefits as payroll, insurance, and other such services for employees. Both can also provide comprehensive HR solutions for a company.

The difference is in the function. Let's say you currently don't have enough staff, and you are therefore looking to add personnel. You might then go to a staffing service such as Kelly for example (one of the country's largest/). They will then screen, hire and send the appropriate candidate, and they will also take care of payroll, insurance, and the various benefits for that employee.

On the other hand, PEO works differently. In this scenario, you already have enough staff, however, you no longer wish to deal with the hassle associated with the back end HR components of having those employees. You agree with a PEO and they become your Human Resources department.

Some More Information on the Pros and Cons of PEOs

The use of PEOs isn't new, but it is becoming more and more prevalent across industries, as CEOs want to focus on running their organizations and generating sales, without having to devote so much of their time to human resource matters.

When you sign up with a PEO you are in essence entering what is known as a co-employment situation. In this instance, the PEO becomes the employer of record. Liability is therefore now on them in terms of the HR end of things.

You are thus losing some of the control, as you have to go by the PEOs rules and policies when it comes to human resource protocol because again they are shouldering a lot of the liability.

So what are the main benefits of utilizing a PEO:

  • You remove the day to day of having to deal with HR related details. It truly is a way to free you up so you can readjust your focus and give more attention to the business itself.
  • All the PEO is focused on are HR-related policies, guidelines, and regulations. This means that they are always on top of changes and can keep the company up to date as far as maintaining compliance.
  • A PEO may be able to get you more favorable rates as far as things such as health insurance and other such benefits. They're negotiating abilities here can certainly be a huge help.

Some of the cons to using a PEO:

  • The cost. There is going to be an expense associated with signing on to this type of provider. And as they generally charge a percentage of payroll it can be difficult to see exactly what you're paying as they tend to lump together their fee with payroll, and taxes, etc.
  • With health plans, the PEO gets to choose. And while they may have negotiating power, if for some reason, you don't like their choice, you're stuck with it. The PEO because they are the employer of record has the final say, and so when it comes to flexibility, it can be very limited.
  • Customer service can be lacking. PEOs service a ton of employees for multiple companies. Generally, they don't offer a dedicated advisor either, so you will be frequently dealing with several random representatives.

Should You Use a PEO?

This is going to come down to your business's circumstances. If you do have a fairly complex hiring system, for instance, you tend to hire international workers, then taking advantage of a PEO service might be a smart move, as they can facilitate a lot of the backend details involved with such a hire.

Additionally, if your company is thought to be high risk from an HR standpoint, a PEO makes sense. Let's say, for instance, there's a relatively high turnover rate. Or there is some other element of risk involved. Placing the burden then on a PEO could help you in the long run.

However, if your HR needs are fairly straightforward, if you're staff is stable and you intend to stay on the smaller side as far as scaling, then a PEO might not be a good option for you.

First Union Lending can certainly help when it comes to getting you additional capital if you are thinking about hiring on more staff or enlisting the services of a PEO to help offset some of the HR work. We have a variety of business loan programs for small businesses just like yours. Call today and let's get started!

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