Both a PEO and automated payroll platforms have seen rapid growth in the last ten years. This isn’t predicted to stop anytime soon. By 2025, it’s predicted HR software will be a $30 billion market. The PEO market is projected to reach equal staggering heights, by 2028 its value is predicted to be $106.21 billion, growing at a CAGR of 10.61% from 2021 to 2028.
A PEO and an automated payroll platform both help organisations wanting to seamlessly pay employees globally. As similar as some aspects are, there are many features of differentiation between both as they provide different benefits and levels of support.
Before establishing which is right for you, let’s begin by explaining the fundamental difference between the two.
- A PEO is an outsourced company that provides an array of support for businesses wanting to expand abroad. From related HR admin tasks, to tackling payroll, onboarding, and compliance. A PEO works with you and becomes a partner to your business, as is responsible for all legal and HR related global expansion tasks.
- An automated payroll platform is a tool that provides businesses with one place for their global employee documents. This can include onboarding info, benefits, payroll, and compliance etc.
How do you know which is right for you?
Deciding which one is best, depends on several factors and considerations. From the size of your business to your short and long-term goals. Below are some key points to help you work out which is right for you.
Often, PEOs are more expensive than payroll platforms. This is because they offer businesses more in terms of what they handle and take control of. For example, it can be particularly cost-effective for smaller businesses to hire a PEO, as they are able to gain access to a higher quality benefits package than they would do, if they were to obtain these externally. These benefits include health care, vision, and retirement plans etc. A PEO also helps with employee onboarding and any HR related admin, which a payroll automation system doesn’t do.
The way a PEO is priced, is usually at a percentage of an employee’s gross earnings. A payroll platform will often be a set cost depending on the amount of employees.
Despite a higher cost, a PEO is often a more cost-effective option for many businesses. A study carried out by NAPEO reported that businesses with a PEO had a better ROI than any other outsourcing method. The typical annual ROI from using a PEO was found to be 27.2%.
A high quality PEO can offer businesses upwards of 15-20 years of experience in the industry. With a higher level of experience, comes a high-level understanding of the potential challenges, especially regarding compliance, that businesses could face with a global workforce. Further to this, PEOs have experienced representatives in whichever location your employees are working from, meaning they’re able to advise them throughout the process.
In comparison, payroll automation platforms are a one size fits all service, meaning any additional requirements or challenges may not be foreseen.
As your co-employer, PEOs are experts at managing compliance. They have the knowledge and experience of rules and regulations in whichever location your employees are working from, meaning they can minimise risk and help businesses handle any legal complexities. Further to this, they share the risk burden when it comes to remaining compliant, in comparison to automated payroll services, who will bear no risk should any potential errors be made. Because a 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 any compliance issues.
A PEO provides a tailored approach to a client’s needs. Often, you get the one vendor who handles business outsourcing requirements, helping to simplify the process and communication. This approach works particularly well for businesses who have a long-term strategy to grow their business and who require a company to manage all their HR administration burdens leaving them to take full control of employee’s day to day tasks.
If you require any assistance deciding which service is right for you, feel free to contact a member of our team today.