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A Deep Dive Comparing HRISs and PEOs

7 key factors to consider before investing in a solution

98% of HR professionals have felt burnt out in the last six months, and nearly 4 in 5 are open to leaving their jobs per a survey from Workvivo. So even if you have a full human resources department or you’re an HR army of one, your business likely needs all the help it can get to do these jobs efficiently and effectively to avoid burnout amidst The Great Resignation.

Real talk: Outside resources to make their jobs easier are a must.

That’s why many small- and medium-sized businesses (SMBs) are looking at entering into relationships with a professional employer organization (PEO) or using a human resource information system (HRIS), like Ease.

So what exactly are PEOs and HRISs, what are the differences between the two, and how can you tell which one is right for your business?

What’s a PEO?

A PEO enters an agreement with an employer where both parties share employee responsibilities and liabilities, including HR duties. When you partner with a PEO, your wages are reported under the PEO’s federal employer identification number, and your employees become “co-employed” with your company and the PEO.

Employers typically enter into a relationship with a PEO in hopes of lessening their HR burden and offering more benefits to their employees, while reducing costs for everyone.

What’s an HRIS?

An HRIS, also known as a human resource management system (HRMS), is a software application used to carry out many of the same HR functions a PEO is used for. These tasks could include benefits administration, compliance, payroll, employee onboarding, and more.

Employers typically use an HRIS when they want to lessen their HR burden, but want to retain full autonomy over their business and employees. With an HRIS, you’re able to use customized technology for your business that simplifies manual processes and allows them to be more efficient. Plus, it provides data to help you make strategic decisions for the future.

While you do have the option of using a PEO and an HRIS, we also know you’re trying to be cost conscious, especially in the bear market that we’re in.

So what are the differences employers should consider when deciding between a PEO and an HRIS?

1) Control

You probably started a business in large part because you wanted to be the one in control. Control of who you hire, what benefits options you choose for your employees, HR policies and procedures, and more.

If that’s the case, then you should know that control is probably the biggest difference between a PEO and an HRIS.

With a PEO, they control all HR functions from soup to nuts. And you relinquish a significant amount of control. With an HRIS, you still control and manage all HR functions, but the technology provides an easier, more efficient, and cost-effective process for you and your HR team — and a more seamless experience for your employees.

Both PEO and HRIS services include employee onboarding, benefits administration and management, payroll assistance, compliance, and more. But there are some key areas worth exploring further so you can consider your control comfort level when it comes to deciding between the two.

Vendor, carrier, and benefits selection.

A PEO chooses which carriers, plans, and benefits are available to your employees in hopes of receiving better benefits at better prices. But, this also might lead to your employees not having the best options available for them or their families, or force them to move to a different carrier or plan than the one they’re currently on.

In certain situations, you might not qualify for their plan, or your premiums may actually be higher, especially if you have a young, healthy workforce. Additionally, all of their plans come from one or two carriers, selected by the PEO.

And, if a PEO uses a provider that ends up not working for your employees, you will typically be the one that draws their ire, even though you didn’t have a say in the matter. You also might not be able to contact carriers directly since the PEO is the administrator or influence what would initiate a provider change (and when) due to malfeasance, incompetence, or ineffectiveness.

A PEO also requires you to use their technology platform, even if you and your employees like your current one. All of this is because PEOs can’t deliver custom solutions — they’re trying to find the options that work the best for most of their clients.

With an HRIS, you choose the HRIS, you choose the benefits, and the HRIS helps you make open enrollment, benefit management, and other HR functions easier.
Custom versus a la carte services. With a PEO, you can’t pick and choose from the services they offer, it’s one size fits all.

With Ease, there are three subscription levels for brokers to choose from depending on what they and their clients need. Additionally, there are options for payroll integration, enhanced HR features, and Affordable Care Act (ACA) forms. That way you and your broker can decide which services and features work best for your business.

HR processes, policies, and guidelines.

With a PEO, employers have to follow all of the PEO’s rules and regulations. This can be tough for SMB owners and their HR personnel who feel they’re the best people to oversee HR duties like hiring, training, and engaging staff.

Business owners also have to inform the PEO of personnel decisions to ensure all HR and employment documentation is completed and compliant. This could cause processing delays. And, if something unplanned comes up on the HR front, an external HR team might not always be able to immediately visit your business in the event of an emergency.

With an HRIS, you get to establish the processes, policies, and guidelines for your business, and access assistance with administration and compliance considerations associated with those HR tasks.

Risks.

If you’ve decided you’re comfortable with a PEO taking all these HR tasks from your plate, the next question you have to ask yourself is if you’re comfortable taking on the risks — and consequences — if they make mistakes. This could range from an HR matter causing an employee to quit to the PEO misfiling your taxes resulting in penalties from the IRS. With an HRIS, you’re in control of your actions and the consequences while the HRIS makes mitigating risks easier for you.

And another thing you may not have full control over with a PEO? Your company culture and employee pride that comes along with it.

2) Culture

One major consideration to entering a relationship with a PEO is how your employees will feel being a co-employee — and how the PEO’s culture will affect them. This can range from everything to how well they communicate with your employees to how they handle various HR duties, including employee complaints or on-the-job harassment.

As mentioned above, you have to follow the PEO’s policies and procedures even if they don’t align with your preferences. You also don’t control the external PEO HR team’s beliefs or how they will handle sensitive HR matters that arise within your company.

It may seem impersonal and emotionally distant to your employees to have to discuss these matters with “strangers.” Which means you may not have as much control over how your employees feel about your company or their overall morale compared to having yourself or HR staff you hired handle things. And, some employees might never give the idea of a PEO a chance in the first place if they have to change their health insurance.

Not to mention, if you currently have an internal HR team they may be resistant to outsourcing their duties as they could feel it diminishes their value to your business. So you may have to work even harder to ensure the workplace you want as an employer wins out.

There’s also a large learning curve for an outside HR team when it comes to understanding your business and transitioning all of the institutional knowledge along to them. After all, it takes new employees a while to ramp up in that regard, and each of the PEO’s clients have different cultures and needs.

So, it could take them a while to figure out what your preferred communication response times are, what your unique customer support needs might be, etc. And in the interim, that could turn off your employees who need HR to work the way it has in the past and aren’t used to delays, limited access, or a learning curve.

Again, with an HRIS, you control everything. It simply makes it easier to do.

3) Capability and quality variation

Like most things in life, capabilities and qualities vary between PEO to PEO and HRIS to HRIS. Here are some considerations you should look for when scoping a PEO or HRIS:

Clientele.

According to The National Association of Professional Employer Organizations, a PEO’s average client size is 23 employees. Some PEOs may only work with large or small clients as their area of expertise. So it’s important to find out:

  1. if they have a particular focus to see if it aligns with your business,
  2. how many clients they have,
  3. how many employees they have to gauge if they can handle your business and how big of a priority you will be as their client,
  4. if they can provide services in all states you do business in,
  5. if they have experience dealing with your industry and/or your typical employee.

Ease designed our software specifically for the SMB market and we remain focused on businesses with 2-250 employees.

Services.

The number of services offered and the quality of those services vary as well. Some may excel at payroll and be less adept at handling HR interpersonal functions, while others may be great at compliance but limited in providing the type of benefits your employees want.

So it’s important to do your due diligence and ask each PEO or HRIS you scope to see what their focus and capabilities are so they match what your business needs the most.

Accreditations.

There are two extremely important credentials to ask PEOs about. Are they a Certified Professional Employer Organization (CPEO) and do they have their Employer Services Assurance Corporation (ESAC) accreditation? PEOs with a CPEO accreditation must meet and retain certain tax status, background, experience, business location, financial reporting, bonding, and other criteria determined by the IRS.

PEOs with an ESAC accreditation meet the gold standards for industry best practices and financial reliability. Having an ESAC accreditation for your PEO is similar to your bank being backed by the FDIC. They offer a higher level of financial protection for their clients.

For PEOs that are backed by ESACs, each of their clients are protected by a bond for up to $16 million in payroll and employee benefits. PEOs that have both of these accreditations offer the highest levels of financial security and assurance to their clients.

Unfortunately, only 1% of PEOs have both accreditations.

For HRISs, G2 reviews and security certifications are paramount. With more than 1,000 reviews on G2, Ease is the top rated broker-powered benefits administration software.

Brokers and employers use Ease because they love the software and they know the information security of their over 2.5 million employees is our top priority. That’s how we earned a HITRUST CSF® Certification. The honor put us in an elite group of companies around the world, showing our dedication to providing top-notch security, managing risk, and protecting sensitive information.

Reporting.

Reporting capabilities, access, and usefulness vary from PEO to PEO. But, to keep employees happy, it’s important to understand whether the benefits being offered are working. Ease generates helpful reports to show what employees are choosing to help inform future benefit offerings. And, you also have access to reporting that lets you strategically make the best data-driven decisions for your business.

Check out the final four factors

Find out the final four factors when comparing HRISs and PEOs.

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