Professional Employer Organization (PEO)

What is the meaning of a Professional Employer Organization (PEO)?

A Professional Employer Organization or a PEO refers to an organization that provides a few or all human resources functions and services to companies. An employer may choose to tap the services of a PEO to outsource certain HR responsibilities to support their HR team. Sometimes, companies may even choose to replace their internal HR department with a PEO. 

What are the HR services that can be provided by a Professional Employer Organization (PEO)?

The following are the different HR services that PEOs can supply: 

• Payroll administration
• Benefits administration and management
• Recruiting and hiring
• Compliance assistance
• Policy creation
• Performance management
• Documentation & information storage

Who can benefit from using a Professional Employer Organization (PEO)?

Outsourcing HR services to a Professional Employer Organization (PEO) provides several benefits to companies. This is especially true for start-ups and small companies that do not have the financial capacity, experience, nor expertise for payroll, hiring, and other HR functions. For example, a start-up may not have the expertise to determine how many people to hire and what HR services they need to comply with federal, labor, and state laws. They may need to hire a PEO until such time that they decide to have an internal HR team. 

Also, seasonal employers can benefit from using PEOs. For example, seasonal businesses such as summer camps may have administrative and workforce management needs that may fluctuate depending on the number of staff or work available. In this case, hiring a PEO can take large tasks off their plate. Tasks such as seasonal hiring, payroll processing, and benefits management can be delegated to a PEO. It may be more advantageous to hire a PEO than it is to hire a full HR team to handle seasonal work. 

Lastly, global companies that have offices around the world may find it challenging to comply with various local, regional, and national laws and guidelines. Also, there may be cultural boundaries and differences that can vary from one office location to another. Having different HR teams set up in each satellite location may be more difficult than using a PEO to provide HR services. The PEO can provide culturally aligned HR services. 

What are the potential drawbacks of a Professional Employer Organization (PEO)? 

Having a PEO instead of an internal HR team on the ground can have potential disadvantages. The primary disadvantage is that the connection between an internal HR team and employees is taken away. While PEOs can provide services to employers, employees who have been accustomed to having HR teams with them in the office may find it difficult to adapt. Because HR teams are often the champions of fostering a company culture and employee engagement, using a PEO rather than a physically present internal HR team can have its downsides. The personal touch, dedication, and connection of an in-house HR team can be difficult to replicate in a PEO set-up.