PEO vs. HRO: What is the difference?

A Professional Employer Organization agreement may seem riskier, but for many organizations, it is better than a standard HR outsourcing agreement. A qualified employer organization lowers your insurance plans through a co-employment agreement. In contrast, an HR outsourcing firm offers an “à la carte” agreement.

In this article, we explain what a PEO and HRO company are. This information is useful for small business owners who are considering choosing a Professional Employer Organization in the United Arab Emirates or HR outsourcing services for the needs of their staff. 

  1. What is a Professional Employer Organization?
  2. What is an HRO company?
  3. Differences between a Professional Employer Organization and an HRO company
  4. Brand and nature of business
  5. Invest time in finding the right HR outsourcing organization
  6. Professional Employer Organization services vs. Human Resources outsourcing: An in-depth comparison
  7. What to ask yourself to choose correctly?
  8. Which one should you choose between a Professional Employer Organization and an HRO company?
  9. How can we help you learn more about Professional Employer Organization services and Human Resources outsourcing?

1. What is a Professional Employer Organization?

A Professional Employer Organization (also called PEO) is a human resources outsourcing organization that acts as your collaborator. In this agreement, your skilled employers’ organization shares all the risks associated with your trade and receives lower premiums for health insurance and workers’ compensation. 

A Professional Employer Organization specializes in connecting small companies like yours to business and health insurance plans that might otherwise struggle to pay. Your PEO must also handle payroll on your behalf; even adding more HR services to your contract if you wish. In any case, since your PEO acts as your collaborator, they will take care of all the time-consuming administrative tasks that are constantly associated with human resources. 

Although your main employer’s organization is your co-worker, it has no influence on how you run your business. Yes, you can interfere with any needs of the HR department, but they cannot perform your real job duties for you. Even with the consent of our co-worker, we can continue to manage your business in exactly the same way as before.

However, it is understandable to worry about a co-worker getting ahead of your business. This outcome is unlikely and guaranteed not to happen if our PEO is certified by the IRS or Employer Services Guaranty Corporation. PEOs with these certifications must adhere to firm standards that make the organization’s business credible.

2. What is an HRO company?

A human resource outsourcing company (HRO) is a company that provides your company with a set of HR services. For example, if you need someone to handle your payroll management and health insurance but nothing more, you can hire an HR outsourcing company in the UAE. You will still be responsible for any staffing issues not covered in your contract, and this division of responsibility may be beneficial to certain organizations. 

3. What is the difference between a Professional Employer Organization and an HRO company?

While a Professional Employer Organization is your co-employer, an HR outsourcing company is just an outside vendor that you hire like any other organization. As a co-employer, a PEO sponsors your health, workers’ compensation, and other types of business insurance. 

With an HRO organization, you will only pay for the services you request. Also, unlike an HR outsourcing service, a PEO will handle your organization’s tax affairs with their own EIN instead of yours.

3.1 Brand and nature of business

Once a company enters an agreement with a Professional Employer Organization, the organization’s brand and employees are now facets of the PEO and no longer the original organization. This can make it difficult for a growing business to build brand awareness and gain employee loyalty. Also, leaving a Professional Employer Organization in Abu Dhabi could be difficult since all employee data is owned by the PEO after an agreement is made.

HR outsourcing companies are still separate entities from a business, so the organization can easily continue to grow and develop. HRO firms will primarily accommodate the increase by providing the ability to adapt service consensus to new needs. Also, HR outsourcing services do not disrupt or affect a company’s brand loyalty or recognition in any way.

3.2 Invest time in finding the right HR outsourcing organization

PEOs and HROs meet the different functional needs of organizations, which poses a challenge in the selection process.

Professional Employer Organization services providers prefer a turnkey solution and resources to define accountability. HROs offer maximum flexibility to organizations looking to outsource specific HR and management responsibilities into organizational tactics.

Organizations that understand your needs will be better informed in the application process. This allows you to align your needs with the services of an HR outsourcing company.

6. Professional Employer Organization services vs. Human Resources outsourcing: An in-depth comparison

To better understand how the PEO co-employment model compares to an HRO company’s standard third-party service consensus, consider the following:

6.1 Setup

As a co-employer, a Professional Employer Organization enters an agreement with you in which they assume all the risks of your trade. For example, in the event of a tax audit, you and your PEO are equally responsible. With an HRO, it is your sole responsibility to handle all IRS matters throughout a tax audit, although you should obtain important documents from your HRO organization.

Additionally, the standard third-party contract we sign with an HRO company allows you to add as many or as few HR services as we want. HRO organizations have the ability to advise us on legal compliance and organizational tactics without becoming our co-employer. PEO contracts focus more on sharing risks and professional responsibilities than on an advisory pact.

6.2 Human resources department

Theoretically, PEOs and HROs have the ability to provide as much or as few HR services as you desire. However, HRO organizations remain more broadly associated with an “à la carte” model where you can choose what you want. That said, we can technically name whatever HR services we want in our PEO contract.

A more obvious exclusion is that PEOs tend to be of higher quality. Since a PEO will sponsor health insurance, workers’ compensation, and sometimes other types of insurance, chances are you will be on more comprehensive plans than you could afford on your own. However, PEOs offer a reduced range of plans compared to HROs.

6.3 Prices

Additionally, a PEO setup fee can be very expensive. However, with an HRO, you are going to have higher insurance premiums, so higher initial prices from a PEO sometimes have the potential to mask lower prices overall.

PEOs and HROs have the option of charging a flat rate per employee each month for their services. Some PEOs have the option of taking an alternate route and charging a percentage of the total cost they pay their employees each pay period. In this model, you can also pay an administrative fee that varies by employee.

6.4 Benefits of flexibility

A Professional Employer Organization will only offer your company its rigid, one-size-fits-all set of insurance plans. While these plans consistently rank among the best, you cannot customize them. Also, you will not have a wide variety of plans to choose from, like you would with an HRO company. That said, the plethora of HRO plans does not include the significant premium savings that come with PEOs.

7. What to ask yourself to choose correctly?

Once you decide how to outsource your HR management, be sure to consider all these questions:

7.1 What are you having trouble with, and would you like to confide in a partner?

First, identify and list the professions you want to give up. Use this list to see how the resolutions you are considering fit your needs. For example, if you only need someone who is needed in one aspect of human resources. As you already have a dedicated team handling other areas, you may prefer to have an HRO. 

7.2 What references from the Professional Employer Organization or Human Resources outsourcing are you interested in?

Check the credentials of the partner you are considering. If they are a Professional Employer Organization in Dubai, are they certified by a third party, such as IRS or ESAC?

On EOR Middle East, we are proud to be accredited and certified Professional Employer Organization in Dubai.

If they are an HRO, check to see if they are part of the HRO Today Supplier Certification Program. Whether you choose an HRO or a PEO, you pay to have a partner, so find out about their qualifications before making an investment.

7.3 What is the experience of the equipment that will manage your account?

Experience is key. Look at their teams’ turnover rates, whether they are an interaction-oriented company, and how many years of experience they have in their areas of need. How much do consumers enjoy working with your team? On our agency, our own renewal rates remain above 97% per year. Our customer retention rate is a testament to our outstanding service and support.

7.4 How do you select and manage insurance providers?

Understand how your potential PEO partner chooses and manages their insurance providers. Case in point: On EOR Middle East, we have been working with our own benefit partners for almost a decade. This continuous cooperation offers security for you and your employees. In addition, you should ensure that you clearly understand the separation of responsibilities between you and your PEO or HRO in relation to insurance/benefit bundling.

7.5 Do you have the time and resources to do HR work yourself?

If you devote time to your core business competencies to handle human resources, payroll, benefits review and administration, regulatory and compliance matters, onboarding, and training, a PEO service global is the best choice. They will complete each of these tasks on your behalf, so you can get your business back on track. If the answer is yes, an HRO could be a good fit for your business.

8. Which one should you choose between a Professional Employer Organization and an HRO company?

PEOs typically work with small and medium-sized organizations (SMBs) because their co-employment models completely eliminate the long-term staffing burden of these loosely dispersed organizations. SMBs also have the opportunity to take advantage of a higher quality benefit management and plans they can take out through a PEO HR service for less money.

Huge organizations consistently hire HROs instead of PEOs as these organizations are more likely to have full-time HR staff. HRO organizations have the ability to perform specific tasks that internal staff does not cover. Or they have the opportunity to help build tactics around appropriate organizational constructions.

However, some small business owners have the option of using HRO companies to keep their prices low and only implement payroll and benefits. However, HROs take no chances and have the potential to leave you with a lot of tedious administrative work. A Global PEO service is generally the best alternative for most small businesses. Find the right one for your needs with our own top picks for PEO services. Whether your primary concern is great buyer service or customized industry human resources, we will find the best PEO service for you fast and easy.

8. How can we help you learn more about Professional Employer Organization services and Human Resources outsourcing?

If you are looking for the perfect human resources management accessory, our firm is your best choice. We put at your disposal our best HR services in the following nations:

We have years of experience working closely with many organizations, helping them solve their HR management challenges. Our organization has a 98% success rate and several awards, positioning us as the leading human resources management organization in the UAE.

Would you like to implement the services of a PEO in your company with EOR Middle East? If you wish to receive our support, reach out to our team at [email protected]. We are ready and waiting for you, contact us!

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