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What is the difference between payroll outsourcing and PEO services?

Saving costs and time on payroll processing, as well as on other aspects of your business, is important for growth. You can choose to hire payroll management only or also do it with other Human Resources activities. Therefore, you must decide between payroll outsourcing or a PEO, who can work as a professional Employer of Record.

In this article, we will explore the differences between both types of services, according to your needs. In addition, we detail the key concepts of both a PEO and payroll outsourcing services. Let us see:

1. What are the definitions of payroll outsourcing and PEO?

2. PEO as a professional Employer of Record

3. Payroll outsourcing and Professional Employer Organization (PEO): Main differences

4. How can we help you better understand the differences between outsourcing payroll and a PEO?

1. What are the definitions of payroll outsourcing and PEO?

Before knowing the differences between a Professional Employer Organization in Dubai and payroll outsourcing, you should know their definitions. Below is a description of the tasks these services perform for your company.

1.1 Definition and duties of a Professional Employer Organization in Dubai

A PEO is an organization that provides Human Resources services as well as payroll to other companies. For example, these organizations may be in charge of providing health insurance, compensation, and other services for your employees. Likewise, a PEO can perform professional Employer of Record functions since it acts as your co-employer.

In this way, this differentiates these organizations from others that offer Human Resources outsourcing services. In addition, with this relationship, said the organization is legally the employer of your workers. However, you remain in charge of hiring decisions, staffing, and termination of contracts.

When you work with this type of Employer of Record, your company entrusts all Human Resources responsibilities to them. Also since a PEO uses your employer identification number to remit taxes, you could save on it.

1.2 Definition of payroll outsourcing

The benefits of payroll outsourcing are focused on compliance with laws and efficient management of the same. In this sense, when hiring these services, the organization handles the payments of the employees within the established term. Also, make the appropriate deductions from wages, such as insurance benefits, etc.

Likewise, these professionals can pay the related taxes if they apply to your company. Similarly, they can file payroll reports and comply with the Wage Protection System (WPS). However, they do not participate in the employment record of the workers as they do not have a co-employment relationship.

As for the work carried out by the company to which you subcontract your payroll, this will depend on what is established in the contract. Thus, you must establish what is the payment that you make for the services and that your company obtains. Additionally, these professionals will establish a point of contact for you to address your payroll questions and concerns.

Also, you must be the intermediary between your employees and the provider in case of complaints or questions. Hence, if your employees have concerns about their pay, benefits, or time off, you should bring them to the attention of the provider.

2. PEO as a professional Employer of Record

A company that needs more complete Human Resources services can hire the services of a PEO. These will handle all aspects of HR such as benefits, taxes, and compliance, among other related topics. Also, something you should know is that a PEO can also be a professional Employer of Record.

That is, they are co-employers with their company and assume certain risks related to the management of employees. Therefore, this is a substantial difference compared to companies that only offer payroll services. In addition, with the co-employment agreement, the PEO provides the necessary compensation for its employees.

Likewise, with this type of Employer of Record, you also obtain benefits of compliance with laws and regulations. Also, they help your company to prepare action plans and improve Human Resources practices.

3. Payroll outsourcing and Professional Employer Organization (PEO): Main differences

There are several differences between payroll outsourcing providers and a Professional Employer Organization in Dubai (PEO). They are between them:

3.1 The services that each one includes

With a professional Employer of Record, your business gets much more than what a payroll provider can offer you. This is because PEOs offer a full service when it comes to employee management. For example, some of its services include hiring, compensation, and medical insurance, among other benefits.

All of this, therefore, allows your administrative burden to decrease and you can focus on other parts of your business.

On the other hand, with a payroll provider, you only get payroll processing and related activities. However, in most cases, these providers also offer other services for managing your workforce. For example, they can manage human resources, perform employment record, handle compliance, etc.

Thus, if your payroll provider does not offer the above services, you have to do it all yourself. This can make you lose full focus on the most significant aspects of your business because of the burden they represent. In addition, all of this can cost you much more than if you hire the services of a PEO.

3.2 Costs of each service

One of the great advantages of having a professional Employer of Record (or PEO), is the savings in expenses. This is because the services they offer would cost you much more if you performed them in-house. Plus, you get perks like more attractive benefits for your employees that would cost more if you purchased them yourself.

For one thing, you can get attractive discounts on the health insurance rates of your employees. However, you should consider the additional fees of a PEO, which can vary between each of them. Also, these fees may be a percentage of the overall payroll costs for your business.

However, the type of payment you are required to make may be a monthly fee for each employee. Also, select a PEO with activities that suit your needs, so you do not pay for what you do not need.

On the other hand, one of the benefits of payroll outsourcing is that the cost is less than a PEO. Also, these costs can vary between providers, with a variable cost for each employee you have in your company. However, if you decide to add activities to those you already have, logically the cost of the services will increase.

This way, with the flexibility of services, you can have greater control of costs as your business grows.

3.3 Control of operations

As the PEO is the professional Employer of Record of its employees, it controls employee management and benefits. For example, you can perform the hiring of employees, and in some cases, you can perform the termination of contracts. Typically, the first case is more common than the second but you should still consider this type of control.

In the case of the payroll provider, your company continues to be the employer of your workers. Consequently, you are the one who makes all the decisions regarding the employees in your charge. In addition, this includes both hiring and dismissal according to their considerations and according to the law.

Also, if you decide to outsource other functions, your business will still have that same control over your workers. In this case, the provider could perform advisory functions on various HR matters.

3.4 Company culture

With the PEO as the Employer of Record, they hire in their name, even though they work for you. Hence, there could be some confusion among employees because the one who makes the payments and receives documents is the PEO. Moreover, in some cases, your employees may feel uncomfortable if they feel disconnected from the company.

Likewise, your employees may have a negative experience with the handling of HR by a third party. However, the solution lies in finding a PEO that fits your company culture to smooth the transition. There will also be a positive impact, as employees can start receiving benefits that they did not have before.

Also, the other benefit is that you can spend more time improving the employee experience in their work environment.

With outsourcing payroll to another organization, all that happens is that you switch payroll management to a third party. However, this happens only if you do not contract other services than that offered by said provider. In this case, your employees will only notice a change in the management of payment options and self-service.

Therefore, you can also have a positive point for the culture of your company, for exact and punctual payments. In this way, the morale of your employees can be boosted by this positive point in your payroll. However, if you decide to add other services, you risk disrupting the current dynamic with your employees.

Therefore, as with the professional Employer of Record, you must choose the provider that is most in line with your business culture. This way, you will be able to maintain good communication, and social activities, while maintaining commitment.

3.5 Your responsibilities

With a Professional Employer Organization in Dubai, you will still maintain your responsibilities such as assigning activities and providing work items. In addition, you will also be responsible for activities that have to do with legal compliance. Likewise, your employees may have to adhere to new policies and procedures.

However, with the payroll provider, your business is still in charge of all the daily operations of your employees. This is because the provider will take care of all the payroll management of your business only. Of course, this is the case if you just outsource this service, as opposed to outsourcing other activities.

3.6 Obligations by contract

In most cases, when you hire a PEO, you may have to sign a contract for a year or more. This can give you a little more security and stability unless you want to terminate the contract. In this case, the process to regain control is to rehire your employees and give them benefits.

Additionally, you will need to find another organization that can take care of your payroll and other services that the provider handled. Also, this is an excessive waste of time and money, you would even have to pay a termination fee.

Similarly, with a payroll provider, you must sign an agreement that determines the responsibilities of both parties. However, one of the benefits of payroll outsourcing is that you can find options that do not require lengthy contracts. Also, should you decide to change providers, the transition is much easier than with full services.

4. How can we help you better understand the differences between outsourcing payroll and a PEO?

With payroll outsourcing, you will simply hand over the management of your payroll to an organization that specializes in payroll. On the other hand, a PEO, who also acts as a professional Employer of Record, gets full HR services. In both cases, you will have professional assistance, it is only up to you to decide what you need.

Consequently, our company can offer you both types of service with the same professionalism in each of them. Likewise, there are other services that we can offer you, such as assistance with international contracts. Likewise, you can relocate your employees or work team within the UAE.

Do you still have any unresolved questions regarding the differences between a PEO and payroll outsourcing? There are two ways to contact us and answer to all the concerns you may have, one of them is by email at [email protected]. Also, you can call us at +971 43 316 688, where you will too receive personalized attention.

To be hired by a major company in the Middle East, go to and upload your resume. Also, as an alternative to the above, you can send your CV to the email address [email protected].

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