Is a PEO just a staffing agency?
PEOs are often confused with temporary staffing agencies. While the two share some slight similarities, the model is different.
PEOs assign their own, existing employees to take over your human resources administrative tasks. The PEO is responsible for most of the behind-the-scenes human resources tasks, such as negotiating health insurance, benefits packages and retirement plans. PEOs deal with reporting wages to the IRS. Essentially, the PEO is handling all the business and administrative tasks related to employment.
These tasks can result in positive outcomes such as:
Fewer administrative tasks. Companies don't have to spend time focusing on tasks like payroll and benefits administration, freeing up hours for you to focus on running and improving the business.
Fewer mistakes. For small businesses in particular, the rules and laws surrounding payroll, benefits and tax reporting are often outside their realm of expertise. PEOs specialize in human resources tasks, so they're less likely to make a costly or harmful mistake.
Legal protections. Most PEOs provide civil defense and employment liability insurance in case a former employee sues the company for discrimination or wrongful termination.
Cost savings, better benefits. Because PEOs are often large companies, they can negotiate better benefits packages and lower insurance costs than most small businesses. However, keep in mind that you are paying the PEO a fee for this benefit. To make sure you're coming out ahead, it's important for you to weigh the service fees against the added benefits.
Staffing agencies, on the other hand, typically provide companies with short-term or special-project employment. They provide the labor, but they do not handle behind-the-scenes administrative tasks like benefits negotiation and tax reporting. If you use a staffing agency to hire human resources employees, those administrative responsibilities will lie with your company.
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