PEOs and staffing companies both offer HR solutions for businesses, but the sorts of services they provide are very different. PEOs offer a wide range of HR outsourcing solutions to ease the burden of paperwork for small- to medium-sized businesses. Staffing companies, on the other hand, offer one option for businesses looking to add workers to their workforce.
If your business could benefit from the services of a PEO, call NetPEO today at (678) 376-1212. Our PEO brokers will schedule an initial needs analysis with you, so we can help you find the right PEO to work alongside your growing company.
As a business owner, you have a lot on your plate Finding, hiring and managing employees takes substantial time and effort To ease the burden, many turn to human resources outsourcing solutions like professional employer organizations (PEOs) and staffing agencies. But what exactly is the difference between the two?
While PEOs and staffing agencies both offer HR assistance, they serve very different purposes. Understanding the key distinctions can help you determine which type of provider is the best fit for your company’s needs.
What is a Professional Employer Organization (PEO)?
A PEO is a co-employment arrangement that lets you offload HR responsibilities to dedicated experts. As a PEO client, you maintain control over your business operations and strategy. The PEO basically serves as your extended HR department, taking over payroll, benefits workers’ comp, HR compliance and more.
Some key facts about PEOs:
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PEOs manage HR for your existing employees. They do not provide staffing or recruitment.
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PEOs serve as co-employers, sharing employer responsibilities and liabilities.
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PEOs handle payroll, taxes, benefits, compliance, workers’ comp, training and other HR functions.
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Clients retain control over their business and employees day-to-day.
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PEOs provide HR systems, tools and expertise most small companies lack.
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Leading PEOs serve thousands of worksite employees across hundreds of clients.
For many businesses, the biggest benefit of a PEO is gaining access to enterprise-level support typically only Fortune 500 companies can afford. This enables you to focus on growing your business instead of HR administration.
What is a Staffing Agency?
Staffing agencies, also known as temp agencies, focus on filling your temporary and urgent talent needs. If you suddenly lose an employee or need short-term staff for a project, an agency can quickly provide qualified workers.
Some key facts about staffing agencies:
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Staffing agencies recruit and supply temporary employees to businesses.
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The staffing agency, not you, acts as the employer for these temporary workers.
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Staffing agencies handle pay, taxes, benefits and compliance for the temps they place.
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Staffing agencies focus on short-term placements, though some fill permanent roles too.
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You pay a bill rate to the agency covering the worker’s pay, taxes and the agency’s fees.
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Larger staffing firms can provide workers for light industrial, clerical, IT and healthcare roles.
For companies with fluctuating talent needs, staffing agencies offer flexibility and convenience. You avoid recruiting and can scale up or down as business conditions change.
Key Differences Between PEOs and Staffing Agencies
While PEOs and staffing agencies both offer HR-related services, they meet very different business needs. Here are some of the main differences:
| PEO | Staffing Agency |
|---|---|
| Manages HR for your permanent employees | Provides temporary workers for short-term needs |
| Acts as co-employer | Acts as sole employer for temps |
| Handles payroll, benefits, compliance, etc. | Handles HR functions for temp workers only |
| Focuses on HR administration | Focuses on recruiting and staffing |
| Supports talent retention | Fills urgent talent gaps |
Some other important differences:
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Cost structure: PEOs charge a per employee per month fee. Staffing agencies charge a bill rate based on hours worked.
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Service model: PEOs provide ongoing, long-term HR outsourcing. Staffing meets temporary, short-term needs.
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Recruiting: PEOs don’t recruit. Staffing agencies handle recruiting for temp roles.
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HR duties: PEOs perform a wide range of strategic and compliance HR tasks. Staffing agencies handle only basic HR for temps.
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Employer duties: PEOs share employer responsibilities. Staffing agencies are sole employer for temps.
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Tenure: PEOs support permanent employees. Staffing agencies provide temporary workers.
As you can see, PEOs and staffing agencies serve complementary yet distinct purposes. Generally a PEO is best for ongoing HR assistance while a staffing agency offers a quick talent boost.
Who Should Use a PEO vs a Staffing Agency?
Now that you understand the key differences in PEO and staffing agency models, how do you know which is a better fit for your business?
Businesses that benefit most from a PEO
- Growing companies struggling to manage expanding HR needs in-house
- Businesses seeking to offer richer benefits to compete for talent
- Companies with 25-150 employees – the PEO “sweet spot”
- Organizations wanting to reduce HR workload so they can focus on growth
- Startups and small businesses lacking HR infrastructure and expertise
- Firms needing help managing HR compliance across multiple states
Businesses that benefit most from staffing agencies
- Companies with urgent temporary or short-term hiring needs
- Businesses with seasonal or cyclical hiring patterns
- Organizations needing specialized skills for a project without hiring permanently
- Companies wanting to test drive workers before making permanent job offers
- Startups and small firms that need talent but can’t afford permanent hires
- Businesses seeking to fill a vacancy temporarily, like maternity leave coverage
Partner With the Right HR Outsourcing Provider
As a business leader, you can’t afford to waste time on administrative tasks. Outsourcing HR functions to experts makes good business sense. Choosing the right partner can provide the talent, systems and compliance support your company needs to reduce risk, cut costs and drive growth.
For permanent talent management coupled with comprehensive HR solutions, a PEO delivers immense strategic value. To fill temporary talent gaps quickly, staffing agencies offer flexible and fast hiring. Understanding the differences allows you to work with providers tailored to your priorities.
By leveraging HR outsourcing companies strategically, you can put your energy where it matters most – running and growing your business. Find providers who seamlessly integrate with your systems and culture so you can offload the HR work you don’t have time for or expertise in. The right partners enable you to focus on your purpose – leading, innovating and moving your organization forward.
Understanding the PEO-Business Relationship
When you partner with a PEO, you agree to have the PEO handle certain HR functions on behalf of your company. As part of this arrangement, you establish a co-employment agreement with the PEO. The co-employment agreement allows the PEO to have the legal authority to conduct the HR responsibilities on your behalf. The legal framework works by having your employees also be employees of the PEO.
Despite this legal framework, your employees still work directly for you. You maintain control of the daily functions of your employees, while the PEO manages the agreed-upon aspects of HR for you.
PEO companies offer services aimed at streamlining how your business handles its HR functions. Rather than hiring an HR team in-house or handling these functions yourself, the PEO’s team of HR professionals handles them. In this way, the services of a PEO save you time and money.
Managing Payroll and Benefits
Handling payroll and benefits administration can be a nightmare, especially for business owners without a background handling these complicated tasks. These tasks can become a drain on your time and energy as your company grows.
PEOs can take the headache out of the process. A PEO can help you track employee timesheets, process payroll, handle benefit claims, and even cut payroll checks on your behalf.
When handling HR matters, there are many federal, state, and local regulations that must be followed. Failure to follow these regulations, like the Affordable Care Act, can result in hefty penalties for your business.
When an Alabama PEO handles your HR functions, they are responsible for ensuring your continued compliance with any necessary state and federal regulations. You can rest easier knowing that your business is in the hands of HR professionals who will stay ahead of current and upcoming legislation so that your business doesn’t need to worry about these penalties
One reason some people may confuse the work of a PEO and a staffing company is that a PEO can help you attract new talent. Your PEO partner can work with you throughout the hiring process, from job posting through employee on-boarding. You can even have your PEO partner handle the initial phone screenings for new employees, making sure that you speak with the best candidates for your open role.
PEOs offer tools to help you with HR functions, including recruiting regular employees. But what if you need employees on a temporary basis? Staffing companies may be a solution for your business.
When you work with a staffing company, you lease an employee from the staffing company to work at your business. While the worker is at your job site, they remain employees of the staffing company. The staffing company cuts the payroll checks for the worker, pays for any employee benefits, and will still be the employer to the worker when their assignment with you comes to an end.
What is a PEO? Professional Employer Organization Pros and Cons
FAQ
Is a PEO the same as a staffing agency?
What is a professional employer organization?
Should I use a professional employer organization?
What is the difference between a staffing agency and PEO?
Both staffing agencies and PEOs are focused on workforce HR tasks, but with a staffing agency you’re outsourcing your hiring process and the associated tasks. With a PEO, you’re doing the hiring on your own and only outsourcing the administrative tasks, payroll, and compliance associated with your workforce. Difference #2: Who Employs the Worker?
What is the difference between a professional employer organization and staffing agency?
A professional employer organization and staffing agency are terms professionals often use interchangeably because they offer similar services, but they have notable differences. It can depend on a business’ needs to determine which services it chooses to use in its workplace.
Can a staffing agency hire permanent employees?
However, it’s become more common for staffing agencies to onboard permanent employees, particularly for specific industries requiring specialized skills and talents. In this case, these permanent hires would become your responsibility as the employer. What is the difference between a PEO and a Staffing Agency?
What is a staffing agency?
A staffing agency is an organization that works to help companies fill urgent and temporary roles. If a company has employees who are on leave or in search of more professionals to help complete a project, a staffing agency can fill those positions.
