PEO vs. Payroll Software


Payroll is often one of the first things companies outsource. Payroll is time-consuming, tedious, and takes time away from critical and nuanced tasks that your HR or accounting personnel could be working on. One of the simplest solutions is to simply buy payroll software, often in the form of software-as-a-service, but there are other options. These include using a specialist payroll service, using a more general HR outsourcing solution, or partnering with a professional employer organization (PEO).

We're going to compare two options, the first being using software to partially automate payroll and the second being partnering with a Professional Employer Organization (PEO).

Learn more about what you should expect from your outsourced HR partner

What is the Difference Between a PEO and Payroll Software?

When comparing PEO services to payroll software, it’s a bit like comparing apples to oranges. It's absolutely essential to understand the fundamental differences. For instance, a PEO provides a service and payroll software is a tool. Additionally, PEOs use payroll software to manage this HR function. Sure, DIY payroll software can be beneficial in some cases. However, it doesn't even come close to providing the value and expertise that a PEO offers.

Here are some of the key differences between PEOs and payroll software solutions. 

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A professional employer organization is a single solution partner who can help you with many HR and compliance issues. Here are some of the benefits they can offer:

  • The ability to outsource benefits administration and other HR functions
  • Experience and expertise on all HR matters, including benefits and compliance. After working for years with a large number of companies, PEOs have seen it all.
  • You only have to pay one vendor to handle all of your outsourcing needs, simplifying billing and communication.
  • Because the PEO is the employer of record, your employees have access to their master health plan and other benefits. This allows you to offer better benefits at a more affordable price.
  • Because the PEO is responsible for compliance and has the expertise to get it right, you significantly reduce your risk of fines and penalties or liability for compliance issues.
  • It is cost-effective, having a better ROI than any other outsourcing method. The typical annual ROI from using a PEO is 27.2%, and that often doesn't include intangible benefits such as lower employee turnover.

Partnering with a PEO is a comprehensive HR outsourcing solution that can make a huge difference for small to medium-sized companies.

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Payroll Software

Payroll software is a broad and competitive field, which means that prices tend to be reasonable. But as the saying goes, you get what you pay for. For starters, payroll software solutions aren’t very inclusive, and finding software with the features you need often comes with hidden charges. You should also keep in mind that a payroll software solution still requires employers to source vendors for workers’ compensation insurance, employee benefits, 401k retirement plans, and software products, to name a few. 

Here are a few more considerations when it comes to payroll software:

  • Data security. Your payroll information is highly sensitive and thus needs to be handled with care. For small companies with limited IT, cloud-based payroll software may be more secure, but any time data is moved, there is always a risk. You need to do your research and choose a vendor with good security protocols.
  • Accuracy. Payroll software depends entirely on the information your HR staff enter. Incorrect information can rapidly propagate through the system, resulting in significant problems and even liability. Imagine ending up owing several months of back pay because of a typo.
  • Time saving. The most significant benefit of payroll software is that it saves a lot of time over manual entry. Because you only have to enter data once, you don't have to waste time every month copying forms. It also, of course, saves paper and printer ink.
  • Speed. Payroll software processes payroll rapidly and automatically, which can help ensure that everyone is paid on time.
  • Self-service. Using software allows you to keep more control over the payroll process, which is very important for peace of mind.

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As you can see, there are numerous benefits for a PEO, and it's also worth mentioning that PEOs use payroll software to help them handle their clients' HR. With their expertise, however, they are better able to use this particular tool and ensure that data is entered accurately and compliance concerns are avoided. PEOs use a sophisticated and robust software with the capability of meeting even the most unique client needs, all while offering the highest standards of data security to you and your employees.

And payroll is merely one function. Unlike what the average small business owner would find on the market, PEOs actually use a fully-integrated HR software that allows them to provide an affordable and scalable solution that happens to do payroll in all 50 states. Payroll software vendors may have 3rd party partners that package together payroll and HR solutions, however only a PEO is going to provide you with a full solution while sharing liability at the same time.

PEOs can help you avoid compliance issues and provide solutions such as telehealth and voluntary benefits that improve retention and attract top talent. So, when deciding between a PEO and payroll software, consider your overall human resources needs and go for the solution that best serves your goals. 

For more information about what a PEO can do for you and answers to other benefits and HR questions, check out our blog, and feel free to contact us with your questions.

What Should You Expect From Your HR Outsourcing Service Company