What is a PEO(Professional Employer Organization), and When Should You Use One? The Pros and Cons of PEOs

What is a PEO(Professional Employer Organization), and When Should You Use One? The Pros and Cons of PEOs

Professional Employment Organizations, or PEOs for short, are HR outsourcing organizations that co-employ your employees. But why do you need one? What duties do they perform? Will they be a good investment? 

An experienced HR department keeps the wheels running in a company. It protects you from legal repercussions and raises employee satisfaction. HR departments report back to you, the owner, and you take appropriate measures. 

Small and mid-size businesses in India have only one or two people in their HR departments. If they lack experience it can be hazardous to the company. Also, when you expand or hire employees from India, you need the expertise of the country’s laws.

Even if you have the expertise, managing those employees is a daunting task. So do you have enough time to keep a tab on every remote employee? Is independent management a better option than a PEO? The possibilities for managing employees are endless. The steps you take are in your hands. 

When Should You Use a PEO in India?

PEOs can be used by small, mid, and large-sized businesses alike. They charge according to your number of employees and carry out a multitude of HR responsibilities. You comfortably sit at your desk handling projects as the PEO manages the HR tasks.

When you expand and hire someone from India, you must also fulfill their payroll processing. This task includes attendance, registration, and filing of income tax returns for the employee. PEOs partner with you to handle all these HR duties of the remote employee while you focus on getting the work done from them. You do not need another HR in India to manage these tasks.

  • Onboarding– PEOs send out offer letters to your hired employees and conduct an orientation program. They help the migration of employees from previous companies.
  • Payroll Processing– PEOs manage all the payroll of the contracted employees.
  • Statutory Compliance– PEOs are acquainted with all the laws, union agreements, and amendments of India. 
  • Benefits and insurance– Partnering with PEOs will result in better benefits packages and insurance for your employees.
  • Terminations– Just like other HR duties, PEOs will take care of terminations and severance packages.

Let us explore both the good and bad sides of collaborating with a PEO. These points will help you in making a sound business decision.

Pros of Partnering with PEOs

PEOs take the responsibility off your shoulders. There are many benefits of collaborating with a PEO.

-You save money

You must be wondering if the advantages of partnering with a PEO will come at a cost. And if it will be worth it to invest with a co-employer for tasks that your HR department can perform well. 

Well, the return on investment on a PEO is fairly good. The National Association of Professional Employer Organizations, NAPEO for short, has estimated that PEO clients save 27.3% every year on costs related to HR duties. 

All your capital that goes into technology and HR personnel costs is saved.

-You focus on core business

PEOs handle administrative HR activities for you. If all the monthly paperwork is done by someone else, you can focus better on growing your business and productivity. NAPEO says that small businesses that work with a PEO grow 7-9% faster.

Companies are upskilling their employees rather than terminating them. HRs now are concentrating to get the best output from their employees. Their job is to provide learning resources so that the employee is more productive. 

Hence, a PEO lets your HR department focus on these areas while they take care of the payroll administration.

-You stay compliant

A one-person HR department is bound to make errors. It is hard to stay compliant if your HR is busy doing other stuff. They can miss amendments, and agreement clauses and mix up data.

PEOs have a team of certified experts who are up to date with any policy changes. They have a systematic approach to payroll processing and employee management.

-Your company has a less turnover rate

Employees leave the company if it does not offer a constructive work culture. Upskilling, punctual payrolls, and flexible shifts are a few elements of employee retention. The first two factors are possible if you partner with a PEO. Your employees gain a better experience in your company and are more invested in work. According to NAPEO, PEO clients have a 14-16% lower turnover rate.

-Your employees get better benefit plans

PEOs provide comprehensive benefits plans to your employees. They have tie-ups with insurance agencies and provide medical coverage to your employees. 

And you need not worry because the PEO will register and provide a help desk to your employees for any doubts.

-You can manage worker’s compensation better

Your HR will understand the burden of auditing the insurance and claims of an employee. Going through the barrage of paperwork is time-consuming and tedious.

PEOs have compliance specialists that cooperate with your HR to deliver faster and more accurate worker’s compensation.

Cons of Partnering with PEOs

PEOs can sound like a good option initially. But adjusting to a co-employment arrangement takes time. You should be aware of the flip side of working with PEOs before you decide to collaborate with them.

-Your HR department shares control

If you work with a PEO, the HR department no longer belongs in-house. They both will share the responsibility. This arrangement can be a smooth one.

You may be wondering if it can also give rise to conflicts of opinion and delayed processing. The answer is a resounding “no” as this issue can be easily resolved through better communication. Your HR will be happy to gain assistance in completing the tedious tasks.

-You take the legal risks

PEOs do not make errors. But in case any such incident happens, you have the solution one call away. PEOs have an expert legal team that will eliminate all legal risks and avoids litigation. They will also assist you to frame company policies in the host region.

-Your employee data may be compromised

PEOs have multiple clients. They have employee data from many companies. Although most PEOs are trustable organizations, you run the risk of security breaches. Stay calm because their employees are bound by contract to not reveal any client data.

PEOs also have better-protected systems. They constantly update their systems with data encryptions and firewalls to protect your employee data. It is easier for hackers to break into your system but complicated to break into the PEO system.

Now that you understand the risks involved, we hope you make a good call. Indian PEOs are great co-employers if you wish to expand and grow your business.

Paysquare is glad to provide you with an outline of PEOs in India. Consult us to keep your temporary Indian staff on our payroll for better benefits and compliance.