Compliance for HR, HR Innovation, HR Management

What are Professional Employer Organizations?

You’ve probably seen certain large, well-known companies here on LinkedIn and other social media and networking sites advertise their HR services. They’ll offer to do payroll administration, employee benefits, workers’ compensation, employment taxes, even employee relations, recruiting and training, at a lower cost than having an internal HR department.  

Sounds good, right? Sure. Who doesn’t want to save money and let a professional do the detailed work of HR? But too often these companies — Professional Employer Organizations (PEOs) — don’t tell the whole story. Short version: They’re not for everyone. 

The truth about PEOs

PEOs require their clients to enter into a co-employment relationship. Under this arrangement, the PEO and its customer share ownership responsibility. As the employer of record — client employees are hired by the PEO and leased back to the client company — the PEO “share[s] and manage[s] many employee-related responsibilities and liabilities.” Now the employer can outsource human resource functions, often at a discount thanks to the economy of scale created under the co-employment model. 

While PEO’s profess to save you money because of the economies of scale, that’s not always true. Bigger is not always better as far as pricing. When you really tear apart their fees, they can be quite expensive.

Additionally, not all companies and their employees are excited about adding another level of ownership to the employee-employer relationship. 

“It seems emotionally cold and socially distant,” Hannah Williams, an HR manager in Warrington, Pa., said after a PEO took over applicant vetting at a previous employer. “I believe the recruitment process and interview should be a warm welcome to your company, and the more you outsource this aspect of HR, the more of this warmth you lose.”

Companies looking at a move to PEOs should consider other challenges as well. PEOs work for multiple companies, as well as managing their own, so a PEO’s poor results can also reflect upon individual client companies. 

Jessica Page, an HR generalist in Torrance, Calif., expressed frustration when a PEO went through a period of high turnover. She’d worked with one HR specialist for three years and is now building a relationship with a new one, in addition to dealing with changes in payroll and training specialists. “[The lack of continuity] is a little disappointing,” she said. 

Once a company has committed to a PEO, getting away can be challenging. “Moving out of a PEO can be very difficult, because now you have to replace a lot of services that were bundled under one umbrella and replace them all individually,” David Cotie, sales director at Group Health Solutions in New York City, said. “That can get complicated.”

How we do it at HR Affiliates

With a PEO, included in the fee is a very low level of HR support. With our model, the client gets a high level of HR support. For more information about PEOs — and why our personalized outsourcing methods can be a better fit for your business — give us a call today. And yes, a real person will answer the phone. 

Contact HR Affiliates Today.

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