The Difference Between a PEO and HR Software

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The HR software market is growing at a staggering rate. By 2030, HR software will be a $30 billion market. For small and mid-market business owners, HR software is a palpable solution that can help you manage teams, maximize administrative workflows, and reduce compliance pain points. Unfortunately, despite 74% of HR pros admitting that HR tech spend is rapidly increasing, a mere 27% rated their new HR tech as "very effective" at making fundamental changes to their HR ecosystem.

Here's the big problem: HR software isn't a cure-all. It won't solve all your HR administrative burdens single-handedly. You still need people, knowledge, strategies, and processes to create a holistic HR ecosystem. Many SMB owners believe that HR software is akin to using a Professional Employer Organization (PEO). That's not the case. In fact, HR software (e.g., HRIS, self-service portals, etc.) is a core component of any returnable PEO's value proposition, but it's only a part of the overall value PEOs offer your business.

This comes down to one fundamental truth: HR software is a tool, and PEOs are a service.

A PEO is an Outsourced Service

Professional Employer Organizations are outsourced HR partners that help you tackle HR administration. PEOs offer a broad range of services, including:

  • Cost-effective benefits: PEOs can help you secure best-in-class benefits at Fortune 500 prices. This is due to the technical makeup of the PEO-business relationship. PEOs can leverage employees from all of the businesses they work with to acquire benefits with economies-of-scale — allowing them to grant superior benefits at lower costs.
  • Payroll services: By default, your PEO will handle all of your payroll needs. The average business owner spends 5 hours per pay period dealing with payroll taxes alone, and it takes just two payroll mistakes to send half of your employees looking for new jobs. The cost-savings and time-savings of outsourcing payroll are massive.
  • Compliance at scale: PEOs provide compliance across taxes, payroll, HR, and safety. From OSHA to ADA, PEOs have the tools, strategies, and experience to keep you compliant with regulatory bodies.
  • Consulting services: PEOs are people — not software. Your PEO can answer questions, provide critical advice, and work as a partner focused on your core business goals.

That's simply a taste. PEOs offer a large variety of services, which are generally customized to fit your business's needs. There's a reason that 98% of companies would recommend a PEO to their colleagues — they work. In fact, businesses that leverage PEOs grow 7-9 percent faster, have 10 to 14 percent lower turnover, and are 50% less likely to go out-of-business.

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

Unlike HR software, PEOs provide you with both technology and people. You can arrange your PEO to work alongside your existing HR team, or you can leverage a PEO as your sole HR solution. It depends on your needs. A best-in-class PEO will be willing to work with your company to come up with a unique, one-of-a-kind arrangement that helps you achieve the highest ROI.

HR Software is a Tool

Let's start by saying this: HR software is incredibly valuable. It can maximize workflows, reduce redundancies, and improve your overall HR ecosystem. But HR software is a tool, and tools require people to make them function. A common mistake that many businesses make is assuming that HR software solves problems. That's not true. People can use HR software to solve problems. You need hyper-experienced HR professionals that understand your software and have the industry experience to make HR software work for you and your unique business needs.

Amazing HR ecosystems are built on the convergence of people and software. Your PEO will provide the industry expertise and software you need to create meaningful HR workflows that bring tangible value to your business. Having just people or just technology won't typically solve your HR problems. That's why most organizations fail to see an ROI on their HR software. It's not the software's fault. It's not their people's fault. They just don't have the right combination of experience and world-class software to create that ideal HR infrastructure.

With a PEO, you get the best of both worlds. Not only will your PEO provide access to their proven HR solutions, but they will also give you access to the people and strategies you need to succeed. In fact, having access to HR pros who understand your HR software provides benefits like:

  • Reduced errors
  • Improved organization of documents and data
  • Streamlined processes
  • Continuous feedback
  • Hyper-accurate analytics
  • Improvements in succession planning
  • Compliance with state and federal regulations
  • Reduced liabilities

Again, this is on top of the other solutions that PEOs provide, like world-class economies-of-scale benefits, workers' comp, claims management, and payroll processing.

PEOs use HRISs to Manage Your Services

Reputable PEOs leverage Human Resource Information Systems (HRIS) — which collect, analyze, and store employee data and documents — to help your organization maximize HR workflows. There are various HRIS solutions on the market, and the PEO you choose to work with will impact which HRIS you onboard. Ideally, you want the following services from your PEO's HRIS:

  • Benefits Enrollment
  • Employee and Manager Portals
  • Hiring Modules
  • Onboarding
  • Time and Labor
  • Reporting
  • Payroll

PEOs alone are powerful HR administration tools. But PEOs that bring along HRIS solutions provide unparalleled HR value to your organization.

Technology + People + Strategies: PEOs Have It All

HR software can't single-handedly improve your HR ecosystem. Software is a tool. You still need the people, strategies, and processes to create a holistic HR atmosphere at your business. By combining people and technology, PEOs help businesses grow; it's as simple as that. Not only do PEOs provide economies-of-scale benefits, workers' comp, payroll processing, and technology, but they're a valuable partner that can answer questions and solve your compliance issues.

To learn more about PEOs, check out our blog.

What Should You Expect From Your HR Outsourcing Service Company