8 Professional Employer Organization Disadvantages Debunked

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With global expansion, HR management of a business has become a more complicated and costly affair. Business owners and investors are continually looking for alternatives to traditional market entry channels. One such channel loved and preferred by businesses worldwide is opting for the services of a PEO or Professional Employer Organizations.

PEOs have rapidly become the most cost-efficient, prompt, and consistent solutions for large and small businesses. They help companies manage their end-to-end human resource needs. However, many companies are unaware of what a PEO can actually do for them. They often get confused if a PEO’s services are right for them or not.

In this article, we’ll talk about the common misconceptions about PEO services. Our guide will help you make a more informed choice for your HR functions.

New Horizons Global Partners

8 Misconceptions About Professional Employer Organization Disadvantages

1. PEOs Are Suitable Only for Large Companies

People wrongly perceive that PEOs are used only by large companies who cannot manage their vast workforce. Many consider that large corporates use Professional Employer Organizations services to reduce their operational costs and free up their HR team for core HR activities.

However, even small and medium-sized companies use PEOs for the same reasons. A small company may not have a dedicated HR team or want to reduce its HR costs. Without outside assistance, small businesses may also find competing with large corporations for talent highly tricky.

2. PEOs Take Control Over Your Business

Many hold this notion that when a company gets involved with a PEO, it needs to share its business control. People think that businesses may shift away from their end goals if they opt for PEO services since it means sharing their decision-making power.

Contrary to this belief, a PEO only manages certain activities on behalf of the company. The complete control over the decision making remains with the business owners. You are free to make your HR decisions, whom to hire, how much to pay or spend on employees, and supervise their work. A PEO only acts as a co-employer and only reduces your employee-related obligations.

This way, you can reduce your HR functions while still having full control over how the PEO manages your employees. A PEO also takes up the responsibility of your legal compliance and employee administration. This way, a PEO gives you more time to focus on your core business strategies.

3. PEOs Mean No HR Team

Companies assume that if they hire a PEO, they will no longer require an HR team for their in-house administration.

A PEO simply takes away the need for the company’s HR department to engage in repetitive and redundant tasks. This way, senior HR professionals can focus on developing in-house policies and better HR operations in the company. If the HR department is tangled between administrative tasks, they may lose focus on improving the HR functions that support its core goals.

With a PEO and in-house HR team working in synchronization, the company can efficiently manage its HR functionsand compliance responsibilities while still focussing on core level improvements. Taking performance initiatives, improving employee relations, and training are some of the tasks which can be achieved while the PEO handles the administrative functions.

When you opt for PEO services, you get access to a large team of professionals from the HR, business, tax, and legal fields. This way, you can implement the best HR and compliance practices while operating an in-house HR team.

4. Employees Hired By PEOs Are Temporary

One of the biggest misconceptions about Professional Employer Organization’s problems is that employees hired by a PEO are only temporary and do not receive a full-time or permanent employee status.

However, this is simply not true!

As the co-employers for a company, PEOs only handle the HR functions, and the company continues to employ its employee. The PEO does not become the employer and assigns the final decision making powers to the company.

5. PEOs Take Over Your Hiring and Terminations

Another myth about PEOs is that the company loses its rights and power to hire and terminate the employees engaged on its behalf. In reality, the company still holds all the rights to hire the right candidates and terminate any employee when they require it.

A PEO also helps the company choose the right candidate and make prompt hiring decisions to acquire the right talent. The company can also expand its talent market and hire international employees through a PEO. The PEO only finds and hires candidates who have the right skills, personality, and aptitude as per the company’s needs. This way, the company also gets the final say about whom to hire and when to hire.

6. Employees Do Not Accept PEOs Easily

Many think that employees may not like that an outsider handles their administration and management. It is misconceived that employees are reluctant to accept a PEO due to a lack of familiarity and access.

However, the reality is the opposite!

When the payroll, employee benefits, insurance, leaves, etc. are managed by a PEO, employees know that they will receive their services promptly, without any red-tapism. 

PEOs fast-track employee requests and applications and simplify the way employees get access to their benefits. It also leads to an improvement in the company’s overall culture since employees are more confident about their rights and work with complete dedication and productivity.

7. PEO Services Mean Only Payroll Management

Many consider a PEO as only a payroll management company. However, in reality, a PEO offers a wide variety of solutions such as:

  • Hiring, contract management, and terminations
  • Employee benefits management
  • Compliance management
  • Employee administration
  • Leave management

All these functions have one goal – to simplify the company’s HR functions, especially small businesses. Experienced PEOs are more that payroll managers and can customize their solutions as per their clients’ requirements.

8. PEOs are Expensive

Another misjudgment about Professional Employer Organization disadvantages is that their solutions are expensive than the solo method. However, PEOs like New Horizons Global Partners provide bespoke PEO services, which can reduce your HR and expansion costs by up to 90%

We are a team of experienced professionals from various industries and can simplify your HR and marker entry functions so that you can focus on your core operations. To know more about our tailor-made PEO solutions, contact us today.

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