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What is PEO? What are the Advantages & Disadvantages?

What is PEO? What are the Advantages & Disadvantages?

PEO (Professional Employer Organization) is an entity that leases employees to an employer and thereby develops a joint employment term with it. This joint employment allows the professional employer organization to handle various responsibilities of the employer related to employees. PEO can manage many HR services for the employer such as employment tax, employees’ compensation, payroll management, employees benefits, etc.

Professional employer organization, as the name suggests, becomes the professional employer for the employees of their clients. The company that hires PEO is supposed to report the wages under PEO’s FEIN (Federal Employer Identification Number) and then the PEO becomes responsible for the employees’ liability. This makes the employer gain scale economies due to increased benefits at cheaper rates.

What PEOs Do?

PEOs can completely and efficiently handle the HR services for a company and can mainly perform the following services for the company that hires it;

  • It performs administration tasks,
  • Manages recruitment procedures,
  • Administrates the employee payroll,
  • Administrates the unemployment,
  • Administrates employees’ compensation,
  • Assists compliance,
  • Executes drug testing,
  • Administrates leave acts (medical or family), etc

You should know : Benefits outsourcing HR Services in UAE

Before hiring a PEO for your company, you must know how it can affect your company. PEO holds many advantages but there are also some disadvantages of it.

Advantages of PEO

Employers can enjoy huge benefits of PEO and both large and small businesses can be benefitted from it. Following are some huge advantages of hiring a PEO for your company;

  • PEO majorly benefits those companies that are extremely new and do not have the expertise of managing the Human Resource of the company. The new businesses don’t have to worry about how they would develop or manage their HR department after hiring a PEO.
  • PEO saves a lot of time and resources for the company and allows the company to direct its focus to the growth and development of its business.
  • PEO offers great benefits to the employees and makes sure that the employees are satisfied by working within your company. The benefit plans of PEO can include medical and healthcare facilities, disability and retirement benefits, etc.
  • By the complete management of payroll, it decreases the burden of accounting and processing costs for the company. The payroll process can be automated and conveniently managed by the PEO.
  • A company that manages all the HR activities itself is always prone to not complying with ever-changing laws of HR in the country which can lead to penalties and fines. PEOs always keep checking for the updates related to the changing HR laws and can provide your company with continuous guidance to help you avoid noncompliance.
  • PEO uses its own compensation programs to provide compensation to your employees along with managing the certifications, paperwork, audits, and compliance.
  • PEO also takes the burden of recruitment and unemployment and always helps your business to find the best and most qualified employees. These processes take huge time and energy when done by the company itself.

Also Read : Wage Protection System (WPS) in UAE

Disadvantages of PEO

PEO relationships benefit the businesses but there are still cases where companies tend to end this relationship and the following are some reasons why this may happen;

  • PEO is sometimes allowed to choose and make partnerships such as worker and health compliance carriers. If the PEO ends up choosing a less qualified provider, it can lead to the loss of the company.
  • The control of hiring, firing, and managing the employees is in the hands of PEO which will provide strict policies in this case. The owner will have to follow the instructions of PEO no matter if these comply with his cultural and ethical values or not.
  • Hiring PEO services can result in losing control of various aspects, people, and processes of the company which can make the owner change his mind with the passage of time.
  • Since PEO is an outside firm and is not directly related to your company, it impacts the company’s culture and environment.
  • Depending on an outside firm to manage the HR procedures for the company strongly diminishes the value of the company’s internal HR department.
  • All the paperwork regarding employees is in complete control of the PEO and the company has no control over it which is not a much-liked aspect of PEO.
  • Letting an outside firm manage the HR activities closes the opportunity of learning about HR management and improvement for the company.

Is it Possible to Outsource all HR Functions?

It completely depends on the company which HR functions it wants to outsource and then it depends on the PEO which services it would provide. A company can choose whether it wants to outsource a few HR functions or all of them because there are several options available such as in ASO (Administrative Services Outsourcing) which agrees on the fact that the company does not need co-employment but a few other outsourcing services.

Choose FAR Consulting  Middle East

To enjoy the best and top-rated HR services, consult FAR Consulting Middle East. Outsourcing HR services is always a good option for your company as long as you choose the right service providers. We ensure the quality of our HR service providers that efficiently manage your payroll, administrative tasks, compliance, etc. Get the top-notch services at hand.