What is the difference between HR management and PEO services?

HR management

All companies have the need and obligation to adequately manage their human capital, which is the engine of every business. There are several ways to do this, like through the services of a Professional Employer Organization (PEO) or an HR management firm. Any of these alternatives can be viable for you, but you must know how to choose the service that best suits you.

In this article, you can find the definition for each of these services offered by HR-specialized companies. Likewise, you will discover the main differences between the two and better understand what is best for your business. Let us see:

1. What is HR management?

2. What is a PEO?

3. Differences between a PEO and HR management services

4. How to assess if you need a PEO or HR management services?

5. Choose the best service provider

6. How can our organization help you define what you really need?

1. What is HR management?

Human Resources management (HRM) involves finding, hiring, and managing the employees of a company. In other words, it refers to what is known as the Human Resources (HR) of a business. Furthermore, the primary job of the HR department of a company is to create, set, and monitor workplace policies.

It is in charge of managing the relationships between employees and the organization where they work. This term began to be widely used in the 1960s to refer to the group of people who work in a company. Likewise, HRM manages the employees of the organization which emphasizes them as assets of the same.

Commonly, the employees of any company are considered its human capital. In addition, the goal of the HR department is to make effective use of the workforce. To do this, HR services allow this to be done with minimal risk and the best results.

Similarly, this term is currently less used and Human Capital Management (HCM) is used instead. However, in both cases, these processes are more efficient and precise due to the use of automation and technology.

2. What is a PEO?

With a PEO, or Professional Employer Organization, you can outsource HR services for your company. In this case, this organization acts as your co-employer at the time of hiring. In addition, said organization takes the risk of hiring for your business.

Not only this, but you can guarantee the benefit of health insurance at lower premiums than if you applied individually. Also, your employees can get better benefits and compensation with the help of these professionals. Likewise, they carry out the Human Resources processes that your company needs to complete if you do not have a dedicated department.

For example, they can take care of a time-consuming process such as a business’ payroll. Also, with this type of organization, you can get all the services you require in the HR sector. In this way, you can confidently hand over the administrative tasks of your business to specialists in Human Resources.

Consequently, you can focus on the business growth of your company. Also, although the PEO is your co-employer, they are not directly involved in decisions about your business. In this sense, said the organization only takes charge of HR management tasks.

You can continue to run your company in the same way that you have been doing with a PEO. The only difference will be that you will have a trusted third-party handling the administrative aspects of your human capital. Therefore, with a certified PEO, you can trust that all the corresponding tasks will be done in the best possible and most effective way.

3. Differences between a PEO and HR management services

A PEO is your co-employer, while the HR management company does not act as such. In other words, the latter acts like any other company with which you subcontract other services for your business. The PEO is the one who sponsors health insurance, benefits, and compensation for their employees.

With an HRM firm, on the other hand, your company contracts only for the specific services it needs. Likewise, a PEO uses their tax registration for tax payment purposes. Therefore, a PEO offers its Human Resources services as a co-employment arrangement.

However, an organization that offers to handle only certain aspects of HR allows you to hire based on your needs. To better understand which company you can hire, you can see the most representative differences between both organizations. Among these factors are:

3.1 Configuration of the service

The Professional Employer Organization assumes the risks of your business concerning the management of the employee as your co-employer. In this case, if your company must comply with an audit process, both parties assume responsibility. However, with HR management, the responsibility for such matters rests with your business alone.

However, all the necessary documentation for these purposes must be requested from the company that manages HR. In addition to this, the company managing your Human Resources can offer you the services as you need them. You can specify this with the supplier from the moment you establish the work agreement.

Also, when you outsource the management of that department, you can get advice regarding the legal compliance of your business, such as updates on the UAE Labour Law. You can also receive suggestions regarding your business strategy, although the company will not be your co-employer. However, the agreement signed with the PEO is for shared risk and job responsibilities with your company.

3.2 Human Resources administration

In both cases, these companies offer HR services to one degree or another, in any way you request. However, companies that offer unique Human Resources services do so through the specific solutions you need. In other words, with these companies, you are in the power to choose the services you want from the provider.

However, you can state in the contract with the PEO the Human Resources services that you wish to include. Likewise, with a Professional Employer Organization, you may obtain a service with greater advantages. For starters, you will get better health insurance for your employees, an adequate compensation, and more.

Thus, you will find much more comprehensive plans than you could get individually. However, your options may be more limited than those you will get with an HR management firm. Nevertheless, you may have to pay more for this insurance than you would for PEO services.

3.3 Difference in costs

One difference to note is that the cost of PEO services is higher than that of HR-only services. Also, some Professional Employer Organizations may have a setup fee for such services. However, as already mentioned, insurance premiums with an HRM are more expensive than with a PEO.

This may well offset the initial costs of hiring the employer organization. On the other hand, both types of companies may require a fee for each employee in a specific time cycle. However, some PEOs may not use this measure but instead, charge a percentage based on the salary of the employee.

In addition, with this organization, you may have to pay certain administrative fees that may differ for each worker.

3.4 Flexibility of service plans

With a Professional Employer Organization, you may only have limited insurance options to choose from. Also, these plans cannot accommodate your needs, while it is true is that the cost may be lower. Similarly, the qualifying service plans of that organization may also be limited.

However, HR services offer a greater variety of packaged services that you can tailor to your business. In this case, you should also consider that HRM plans do not offer the premium savings that a PEO does.

4. How to assess if you need a PEO or HR management services?

The first thing in these cases is to evaluate the needs of your company in terms of Human Resources. In the case of deciding on a PEO, with it, you will obtain all the services that a Human Resources department includes. Therefore, they are the ideal services for small businesses that do not have one of these departments.

Likewise, they are favorable for smaller businesses that want to offer great benefits to their employees. In this sense, they include, for example, the lower insurance premiums that we have discussed above. A business that needs to obtain dental plans, flexible spending accounts, or others, must associate their company with a PEO.

Other benefits of PEOs are focused on compliance with labor and tax laws where it is located. For example, they process your payroll in full compliance, as well as the compensation of your workers.

On the other hand, companies that are in the process of growth can opt for outsourced Human Resources management. This is also ideal for large companies that want to free their HR department from repetitive and tedious tasks. In this case, it can be tasks such as payroll processing or certain changes within the business.

However, there are cases where companies do not want to hand over essential responsibilities to a PEO. Many companies handle sensitive data and do not want to risk sharing it with a third party. In this case, with an HRM, companies do not need to cede control of their data to these organizations (Also, click here to learn about data cleansing).

All the same, the business that hires this provider will be able to count on the services and access the administrative benefits. However, PEOs need control over data to automate various processes (such as payroll).

In conclusion, whatever service you choose, you must ensure that they are under the needs of your business. In this way, you will be sure to obtain a more efficient joint work and with the benefits that your company needs. 

5. Choose the best service provider

The market has a wide variety of organizations that offer HR management and those that provide PEO services. Therefore, no matter which of these services you require, you must have well-established criteria when choosing one. Remember that you will enter into a relationship with an organization that will manage the most important part of your company, human capital.

First, determine if the suppliers share the distinctive values of your company, as well as your company culture. Also, know the references of the clients who have worked with these organizations, and thus know the quality of the service. You should be aware of the provider’s experience in offering these services.

With these references and knowledge of the plans, you can decide on the company that is best for you. It is worth pointing out that we, at PEO Middle East, are continuously supporting the expansion of companies accross the Middle Eastern region. If you would like to learn more about us and know why can be your best partners, you can always contact us.

6. How can our organization help you define what you really need?

A Professional Employer Organization, or PEO, is a service with a broader range of HR activities for your business. With an HR management organization, you can cover specific needs of this department and overcome challenges. Also, there are different reasons for choosing between one or another organization, so you must assess what you require.

With a PEO like ours, you can get the great benefits that your business and employees deserve and need. Do you only require payroll services? Then, you can also choose us as the right partner to do it for you. In addition, we are specialists in Employer of Record solutions within the United Arab Emirates.

We have a long history of success in promoting the expansion of many companies in the region. For this reason, we are your best allies if you wish to implement the best solutions that will, indeed, be the beginning of your company’s growth.

Is it hard for you to decide which of these services you need to keep your business moving forward and growing? It does not matter if you are in Turkey, in Saudi Arabia, or instead, you live in the UAE. The best professionals of our organization are willing to clarify your doubts as soon as you email us at [email protected]. Similarly, if you just want to make a quick inquiry or request a service, contact us at +971 43 316 688.

If you are a trained professional in need of a job, you can go to thetalentpoint.com and check out the excellent opportunities available right now. You can also send your CV and cover letter to the team of [email protected].

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