As an employer, you may be searching for solutions for employee-related tasks such as hiring, staffing, and managing employees, as well as HR tasks. Which means you may also be wondering what the difference is between PEO companies, staffing companies, and employee leasing companies.
Here’s a plain and simple way to understand the difference between the three.
What is a PEO Company?
A professional employer organization (PEO) provides human resources services for its clients, which can include payroll and taxes, assisting with federal, state, and local compliance, and providing employee benefits and workers’ compensation.
When a business partners with a PEO, they are essentially outsourcing the human resources portion of their business so they can spend more time focusing on business operations.
PEO companies partner with a variety of business types, from manufacturers to accounting firms, construction companies, retailers, high-tech companies, sanitation businesses, doctors, engineers, security professionals, and more.
PEO companies use an economy of scale to provide their clients with best-of-class benefits such as 401ks at cost-effective premium rates that would typically be out of reach for small- to midsize businesses. PEOs are also able to solve many workers’ comp issues for their clients, often resulting in lower comp premiums for their business partners. PEOs typically offer a pay-as-you-go model for workers’ comp, tied to payroll, that allows their business partners to avoid large deposits and end-of-year audits, as well.
When a business enters into a partnership with a PEO, the two entities enter into a co-employment relationship which involves a written contract allocating shared employer responsibilities and a common tax ID number. The PEO company becomes an official co-employer of the existing and future worksite employees.
What is a Staffing Service?
A PEO company is not a staffing service. A temporary staffing service recruits and hires employees, placing them with clients to fill a temporary need. Often this is because of an employee shortage, a need for a seasonal workforce, or to cover an employee on leave. A staffing company is typically used to supplement an existing workforce.
PEOs do not provide labor or workers for your company. Depending on the specifics of your PEO co-employment contract, a PEO may help you with employee hiring or training. Or you may decide to keep those responsibilities solely up to your own in-house HR department.
What is an Employee Leasing Company?
Employee leasing companies are organizations whose business it is to furnish workers to a client company on a long-term or per-project basis. They’re more similar to a staffing company than a PEO, though the staffing company usually provides workers for the short-term.
There can be a lot of confusion between a PEO company and an employee leasing company.
When the PEO industry first started it was often referred to as employee leasing. In these arrangements, companies would “lease back” their own employees from an employee leasing company that took on all of the administrative tasks associated with employment. Over the past 25 years, the PEO industry – and the co-employment relationship – has evolved. PEO companies of today are completely different from today’s employee leasing companies.
Because of the past use of the term “employee leasing” to describe PEO activities, the term is often mistakenly used interchangeably. But there is a difference.
PEO Companies vs Employee Leasing Companies
PEOs typically do not recruit, train, or provide staff to their clients. They simply become co-employers with their client and provide HR and benefits services to the workers. If the agreement between the business and PEO is terminated, the workers continue under the direct supervision of the business.
Employee leasing companies provide workers to businesses for work long-term or for the duration of a specific project. These staff assets are employed by the third-party employee leasing company. The workers ultimately will move on to a new business or a new project. If the business and the employee leasing company part ways, the leased staff returns to the leasing provider - they do not stay with the business.
Which Employee Solution Do You Need?
Here’s an easy way to determine which employee-related service is most beneficial to you.
If you need:
Short-term staffing: a staffing company provides short-term help to cover your employees during their paid leaves or absences, to fill the gap during employee shortages, or to support your staff during seasonal times.
Long-term staffing: an employee leasing company can provide help when you need a long-term staffing solution or workers for a specified project duration only.
HR and payroll services for your existing workers: PEO companies assume responsibility for HR management functions such as payroll, taxes, benefits, workers’ comp, and more. PEOs take care of the employee-related tasks for your business so you can focus on your core competencies and the “business of doing business.” Your employees remain your employees in the event you decide to end your PEO partnership.
When you run a business, employee-related concerns can take a significant amount of expertise and resources. Whether it’s finding the right employee, hiring, training, payroll, managing benefits, providing benefits, managing benefits, or finding temporary employment help to supplement your existing workforce, we hope this guide helps you understand the different ways that PEO companies, employee leasing companies, and staffing companies can be used to help you.