We’ve all heard those enigmatic acronyms thrown about by the HR community – HRO, PEO…it’s enough to make you want to exclaim “WTF!” in frustration. Don’t despair.

Let’s define and spell out the differences between these terms. HR professionals evaluate the value-added benefits that HR outsourcing (HRO) can deliver to their organizations. Additionally, they also consider the services of a Professional Employer Organization (PEO). While HRO and PEO providers generally address the same set of HR functions, the manner in which they execute these is different.

What is a PEO?

A PEO is a firm that provides bundled service under which an employer can outsource employee benefits, payroll & workers compensation, recruiting, and risk/safety management. It does this by hiring an organization’s employee, thus becoming the employer of record for tax and insurance purposes. This practice is also known as co-employment or joint employment. A PEO offers bundled HR services, in a one-size-fits-all package.

What is HRO?

An HRO firm is an independent 3rd party provider of HR services. Depending on a clients’ needs an HRO can provide various HR activities such as payroll, benefits administration, recruiting, and training. In addition, most HROs offer a wide range of services from high level strategic HR to the day to day HR general administrative functions, which can be bundled together or a la carte so you can pick and choose which HR responsibilities you want to outsource.

Unlike a PEO an HRO firm does not take control over your organization but instead supports/enhances employee relationships that you already have developed with your employees as well as supports the HR & Risk Management decisions that you have made for your business previously, now and into the future.

An HRO model is tailored to the employer’s needs, a stark contrast from the one-size-fits-all model of PEOs. Many HRO providers offer competitive benefits as well. A big advantage of an HRO model is that it can scale with the organization, whereas PEOs are only cost-effective in a narrow band of sizes.

As an organization evolves over time and the number of employees fluctuates, maintaining a human resource department may become a challenge. By partnering with an HRO firm to outsource your Human Resources to a dedicated, highly skilled team of professionals, you can rest assured that you are making a sound investment that will save you money and increase your organization’s efficiency in the long term.