It’s the end of the day, and you’re still dealing with payroll problems, compliance paperwork, and employee documents. Your company is expanding, and you know you’ll need assistance—but should you join forces with a Professional Employer Organization (PEO) or a staffing agency? Both are solutions, but they operate in completely different manners.
It is a familiar crossroad for business leaders. As companies grow beyond what one individual or even a small HR department can handle, the PEO vs. staffing issue arises repeatedly. And with shifting labor markets happening faster than ever, selecting the proper assistance has never been more critical.
In this guide, we’ll break down the real differences between PEOs and staffing companies, when each makes sense, and how to decide which is right for your business.
A Professional Employer Organization works through what’s described as a co-employment relationship. It’s like having a business partner who’s an expert at all the HR headaches you’d rather not have. When you join a PEO, they don’t acquire your business or dictate how to operate your day-to-day operations. What they do is manage the administrative aspect of having employees, so you can keep your focus on what you do best.
The co-employment agreement means your workers technically are employed by your company and the PEO. You have full control of their day-to-day operations, company culture, and business choices. The PEO handles payroll processing, benefits management, labor law compliance, and all the paperwork of being an employer.
This interaction has grown progressively more important as employment laws continue to proliferate. Small companies today have compliance obligations that would have swamped Fortune 500 companies a decade ago. PEOs have staff of HR professionals whose sole job is keeping up with these constantly changing mandates.
Staffing firms serve as the middleman between firms and employees. If you need an employee to fill an opening, be it temporary or full-time, the staffing firm recruits, vets, and brings the prospects to you.
The main difference is the employment relationship. If you hire from an agency, those employees are still workers of the staffing agency, not your company. The agency writes its checks, offers its benefits, and takes care of its tax withholdings. You pay the agency a fee, and they deal with all of the employment-related activities.
Staffing agencies are best at quickly filling specialized positions. They have databases of pre-screened candidates, and they can usually present qualified prospects in a matter of days. That speed is invaluable when you must replace a person who walked off the job unexpectedly or when you need to fill a deadline project.
The PEO vs staffing comparison reveals several fundamental differences that affect how each option impacts your business operations.
Structure of Employment Relationship With a PEO, your current workers are co-employed by you and the PEO. You hired them, you supervise them day-to-day, and they’re members of your company culture. The PEO merely manages employment administration.
Staffing agencies send you their employees to work at your site. These employees may fit in with your crew, but they are actually employees of someone else. This makes a difference in everything from office politics to liability.
Service Scope and Focus: PEOs deliver a range of HR services, such as payroll processing, benefits administration, compliance management, risk management, and employee training programs. They’re built to manage the entire range of employment-related activity for your current workforce.
Staffing agencies concentrate mainly on recruitment and placement. They have a knack for identifying individuals with certain expertise and getting them working efficiently fast. Though some larger agencies may provide some extra services, their key strength lies in talent acquisition.
Cost Structure Variations: PEO pricing generally functions as a percentage of payroll, anywhere from 2% to 12% based on included services and the number of your employees. This provides stable monthly expenses that increase along with your business growth.
Temp agencies most often take a flat placement fee or an hourly rate markup from the employee. If you hire temporary help, you could pay 25% to 50% above the employee’s actual wage. To make permanent hires, you can expect to pay 15% to 25% of the first-year salary.
Choose a PEO if:
Choose a staffing company if:
With PEOs
With staffing agencies
For a PEO
For a staffing firm
The choice between a PEO and staffing agency ultimately depends on whether your primary need is comprehensive HR management or specific talent acquisition. Many successful businesses use both, partnering with a PEO for their core workforce while utilizing staffing agencies for temporary or specialized needs.
If you’d like, OEM America can make a complimentary, no-obligation comparison with your existing payroll and benefits figures. We’ll compare side-by-side costs for a PEO arrangement and the staffing method so you can decide with confidence.