If you’re a business owner trying to save money and resources, chances are that you’ve read acronyms like BPO and PEO. You know they both have something to do with third-party services, but what exactly is the difference?
Aside from PEO’s typically being more expensive than a BPO, there are other key differences. Read on to discover the benefits that come with outsourcing to a third-party service provider.
What is BPO (What is Business Process Outsourcing)?
Business process outsourcing (BPO) is the practice of delegating certain internal company practices to a third-party company. Common BPO services include:
- Payroll and accounting
- Information technology (IT) management
- Website and social media management
- Benefits management (health insurance, vacation, etc.)
- Customer service (call centers)
BPO companies are there to help businesses save money by providing outsourced services only as needed. For example, while every business needs someone to set up and manage the company’s office network, data storage, and computers, most small businesses can’t justify the cost of hiring a full-time IT manager. This is where BPO can help.
Businesses that work with a BPO company are contracting services for a fee. In other words, the BPO company is working within the employment and customer framework that the business already has set up. As you’ll see, this is a bit different than a PEO.
What is a PEO (Professional Employment Organization)?
A professional employment organization (PEO) hires employees for a particular company and leases their services to the company for a fee. This is known as a co-employment arrangement. Unlike with a temp or staffing agency, you’ll still have control over hiring and firing decisions, and your employees won’t be assigned to another company.
PEO services are less like outsourcing HR and more like renting someone else’s HR department. When you work with a PEO, you’re essentially forming a special partnership between your business and the PEO company. Your business agrees to no longer hire employees directly. Instead, the PEO does the direct hiring and leases their services to your business.
PEOs typically offer the full range of employee- and HR-related services, including:
- Payroll processing
- Calculating, processing, and submitting payroll taxes (both employer taxes and withholding taxes)
- Onboarding and training
- Health plans and benefits
- Workers’ compensation, unemployment, and other employer insurance
PEO’s are typically more expensive than a BPO. With a BPO, you pay only for the services you need. With a PEO, unless otherwise determined, you’ll be paying the payroll taxes and filing returns for the employees you are using. In some cases, a PEO may share that burden with you, or take it off your plate entirely. However, with a BPO, you will never pay payroll taxes for services you use.
What is the Difference Between PEO and BPO?
Both BPO and PEO are ways to help your business save money and boost motivation, but they do so in different ways. The biggest differences are about cost, choice, legal responsibility, and volume discounts. Let’s look at these in more detail.
- PEO Costs More Than BPO
Even if companies are not outright paying the taxes for their PEO workers, payroll, health insurance and workers comp may be built into the price.
- BPOs Offer More Choice
BPOs center themselves around your business and its existing practices. For example, if you already work with a particular business insurance company or third-party vendor, most BPOs will be able to manage your existing relationships with these companies.
On the other hand, PEOs already have their own vendors and insurance relationships. Part of signing on with a PEO is agreeing that they’ll be in charge of selecting and managing these companies. This could mean having to switch health plans or training providers, something that you’ll need to communicate clearly with your employees.
Additionally, PEO centers around the HR function, while BPO offers a wide variety of administrative, back office and even leadership roles.
- PEOs Have Skin in the Game
After signing an agreement with a PEO, your employees will switch from working for your company to working for the PEO. That means that the PEO is now legally responsible for everything about your employees, from background checks to payroll taxes.
As you can imagine, all of this means that PEOs can seem strict about employee training, workplace compliance, and other HR matters. But it’s all for a very good reason — if there are any compliance issues, the government will contact the PEO, not you.
On the other hand, BPOs may help you manage payroll and tax compliance, but your business is still ultimately on the hook as far as the government is concerned, even if it’s the BPO company that made a mistake.
- PEOs Come With Volume Benefits
Your company isn’t the only one working with your PEO, and that’s a good thing. The more employees that work for any one company, the better the rates for insurance, health care, and other benefits. PEOs pass those savings to the individual companies they work with, meaning that a business with 20 employees can offer health plans at the same rate as a company with 1,000 employees or more.
To summarize, here’s a recap of the biggest differences between BPO and PEO:
| BPO | PEO |
| Contractual fee-for-service relationship | Co-employment partnership/relationship |
| Works with your existing insurance and vendors | Takes over selecting and managing insurance and vendors |
| Seamlessly integrates with your business’s existing processes | Your business will need to adapt to the PEO’s existing structure |
| Your business is still ultimately responsible for compliance | PEO is ultimately responsible for compliance |
| No volume discounts beyond your company’s size | Volume discounts for health plans and other insurance with other PEO clients |
Save Money and Time with Outsourcing
The most important decision you can make as a business owner is how to make the most of your employees’ talents. That’s why, at Confie, we put people and culture above everything. We can help you customize a plan for letting your key employees focus on what’s important. Get in touch with us today to learn more or give us a call at (714) 252-2500.
