Know the Difference: Understanding PEO vs. HRIS

If you’re an employer or an HR professional, you know how important it is to perform your basic HR processes correctly. Employee satisfaction depends on you providing accurate and timely paychecks. Mistakes in payroll processing or recordkeeping may also expose you to potential penalties and fines for noncompliance.

Human resources, though, involves much more than the basic payroll processing and record-keeping functions. A well-run company needs effective strategies for attracting, motivating, managing and retaining top talent. For this, you might need to provide and administer a competitive benefits package. You'll also want to provide employees with job training to help improve efficiency. And for compliance, you'll want to keep up with ever changing rules and requirements. Businesses today need a more holistic solution to the growing demands on their internal HR capabilities.

For all these reasons, small- and medium-sized employers need high-quality HR support. However, they may not have the resources to staff the type of full-fledged HR department that a large organization would have. Solutions these employers might consider include a professional employer organization (PEO) or a human resources information system (HRIS). And within the context of PEO vs. HRIS, there's much to consider.

PEOs provide full-service HR solutions to businesses. An HRIS is a software service, usually subscription based, that automates HR administrative tasks. Businesses with even very small internal HR teams can use an HRIS to help amplify the efforts of their employees. This can help save time and money and improve the accuracy of the company’s HR functions.

Here we'll take an in-depth, comparative look at PEOs and HRISs. If you are an employer or an HR professional, this can help you determine between PEO vs. HRIS.

The Role of a PEO

A PEO provides HR outsourcing services to a company, typically one that is small- or medium-sized, enabling the company to outsource some of its HR administrative tasks. The PEO and the client company enters into a contractual relationship which allocates certain duties and responsibilities between the parties. The PEO operates under a co-employment model in which the PEO, as a co-employer, is the employer of record for tax purposes and is responsible for collecting and remitting payroll taxes for employees on its platform. The client company focuses on its core mission and controls the day-to-day operations and supervision of its employees.

A Certified Professional Employer Organization (CPEO), like TriNet, is a PEO that has been certified by the Internal Revenue Service (IRS). Certification is granted to PEOs that have met, and continue to meet, the IRS’s strict standards for credibility and reliability in their experience, background, bonding, financial compliance and tax compliance.

A PEO can offer a large variety of outsourced services that go beyond basic HR tasks. The type and number of services offered depend on the PEO, the client business and the specific client-PEO contracts. Here are a few examples of what a PEO’s HR outsourcing services can include.

Payroll processing

PEOs offers payroll administration services where businesses can upload time reports for their employees and help with calculating deductions and paying employees via checks or direct deposit. The PEO collects the payroll taxes and remits to the appropriate taxing authority. The PEO can help with recordkeeping of payroll records too.

Employee benefits

PEOs helps with benefits administration. They provide information about PEO-sponsored benefit plans to employees, help administer benefits enrollment and process benefit deductions. PEOs also offer small businesses access to premium benefits.

Risk mitigation

PEOs provides expertise, guidance and best practices to clients to help with HR issues. PEOs can help your company improve worker safety, handle and expediate workers’ compensation claims, and provide resources on employment-related claims to help prevent these issues. Under certain circumstances, some PEOs offer a program to help to limit the exposure to these employment-related claims and to help manage the claims process for the business.

Compliance

Employers are responsible for adhering to a complex web of federal, state and local employment-related rules and requirements. These rules and requirements often change. PEOs provides their expertise and knowledge to help small businesses stays in compliance. By staying on top of compliance, businesses can navigate through the complex environment and help ensure compliance and helps to avoid noncompliance steep penalties.

Recruiting and onboarding

Small businesses often don’t have the resources to help with recruiting and onboarding new employees. PEOs offer recruiting and onboarding best practices to help business make better hiring decisions. PEOs may also help with initial training and provide tools to business to help with ongoing employee development and performance management. All this can help create a more motivated and effective workforce.

Workforce analytics

Some PEOs may provide access to tools to leverage company’s employee data with sophisticated analytics programs that provide insights to help you assess employee engagement and employee turnover.

Compensation benchmarking

One analytics function PEOs may provide is compensation benchmarking tool. This helps to compare job data and comparable positions in the market. This can help you align with your business needs and the market to attract new employees and employee retention.

HRIS: The Internal Tool for HR Departments

Attempting end-to-end HR administration by manual processes is an inefficient practice prone to errors. A human resources information system (HRIS) helps to automate the processes and to make them more reliable. An HRIS is available either as HR software that you can install in your computer system or as an online platform that stores information in the cloud.

If your company has limited staff to devote to HR administration, an HRIS can help minimize the time they need to spend on routine tasks. It helps to free up their time to handle other projects. An HRIS can also help ensure accuracy, which helps to reduce risks of noncompliance. Here are examples of functions that an HRIS may provide.

Applicant tracking

An applicant tracking function screens resume and collect and organize data about candidates. This may make it easier for recruiters to access and share information with each other.

Payroll processing

An HRIS can help you manage payroll through the employee lifecycle. It can collect employee information, hours worked, calculate deductions for taxes and benefits, and calculate and pay employees.

Managing employee data

Payroll data needs to be organized and stored, both to help the smooth running of your company and to meet certain federal, state and local record-keeping requirements. An HRIS can help ensure that records are being stored and easy to locate when needed.

PEO vs. HRIS

If you contract with a PEO, both you and the PEO will have certain responsibilities with respect to your employees. The PEO will handle certain HR administrative functions. If you use an HRIS, you will most likely handle those administrative functions in-house, using a specially designed HR software system.

Using a CPEO offers additional value that an HRIS does not. The certification helps assure businesses that CPEOs are trustworthy providers with expertise and also prevents PEOs to evade certain payroll tax obligations.

Small and medium-sized business are more likely suited to work with a PEO for HR outsourcing services. The PEO helps to free up employees’ time so they can focus on the core mission of the business. As a company grows and scales, and it brings on additional personnel who can devote more time to HR matters, using an HRIS may be more cost-effective. However, companies may choose to stay with a PEO for its expertise and other advantages.

What are the pros and cons of using a PEO?

A successful PEO may deliver significant advantages to smaller businesses that don’t have HR abilities or resources to manage broader programs like payroll and HRIS.

Weighing the pros and cons is crucial to finding the right fit. PEOs typically offer administrative support such as:

• Payroll
• Benefits
• Hiring services

These can be a huge relief to small business owners. Some of the pains that can be removed via a PEO include:

• Benefits administration
• Compliance assistance
• Drug testing programs
• Family and Medical Leave Act administration
• Hiring and recruitment
• Payroll, unemployment, and workers’ comp administration

The main downside of joining a PEO is that employees may have less flexibility with their schedules and more individual responsibility for keeping track of company expenditures. Some of the other disadvantages might include the following:

• A loss of institutional knowledge
• An outside company’s influence on your culture
• Diminished value of internal HR department
• Employee resistance
• Impersonal/automated customer service
• Increasing prices
• Lack of flexibility, loss of control of essential processes and people
• No employer-employee relationship
• Security issues within the vendor’s system
• Tech limits

What are the pros and cons of an HRIS?

A sturdy HRIS can streamline the processes of:

• Managing human resources
• Help businesses save time and money
• Generate new business opportunities.

However, getting the ball rolling can be costly and complicated. Although the benefits outweigh the negatives, it’s still important to understand all your options before making a decision.

HRIS positives:

• Automated reminders: events, performance appraisals, benefit deadlines
• Benefits administration: enrollment, notices, changes, and reporting
• Employees can enter the system to change or retrieve data without bothering HR
• Improved data accuracy
• Integrated data: different parts of the system can “”talk to each other”
• Most HR-related employee tasks only need to be entered once
• Recruiting management: applicant tracking, management, and reporting
• Self-hosted company documents: employee handbooks, procedures, safety guidelines
• Updates occur in one place when employee information changes

HRIS disadvantages:

• Systems must be designed to prevent unauthorized access to sensitive and confidential data and unintended publication
• With any system, there are acquisition costs and maintenance costs. SaaS (software as a service) systems are less expensive since they are cloud-based

With larger systems, you’ll have to cover the cost of hiring a specialist to manage the HRIS

HRIS can be a useful tool for an organization to assist in hiring, training, and tracking employees. It can be used as a cost-cutting measure or as a way to maintain the health of the workforce.

The best HRIS software tools are those that are:

• Most customizable
• Built with accurate reporting systems that are compatible with native company software.
• Other nice-to-haves are strong support teams offering customer service via phone or webchat.

All Things Considered

In itself, the choice being yours is empowering. To make informed decisions, carefully consider your organization's current needs, short- and long-term goals, budget and internal resources. Then list the questions you'll want answered by PEO and HRIS services as you search for your best HR solution.

TriNet is a CPEO that has been serving businesses as a PEO provider for more than 30 years. In addition to being certified by the IRS, we are also accredited by the Employer Services Assurance Corporation (ESAC).

Our full-service HR solution helps our client companies grow and thrive. Contact us to learn how we can help your business, or take our free assessment to find out whether a PEO is the right HR solution for your business.

This communication is for informational purposes only, is not legal, tax or accounting advice, and is not an offer to sell, buy or procure insurance.

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