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What Are the Differences Between a PEO and a Staffing Agency?

Posted by Stacey Jones

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Aug 1, 2019 8:00:00 AM

Any business owner or HR manager with a growing business knows that workforce expansion is necessary. This is especially true for international companies who are planning to enter new markets, as this will require a company to staff the new branch office in the new market or handle payroll and compliance for remote staff working out of country.

adult-businessman-contemporary-937481When it comes to employing people, you have a few different partnership options, which can make it difficult to know exactly which type of organization you should hire. Do you need the services of a staffing agency? Or do you require the services of a professional employer organization (PEO)?  

If you’ve ever wondered about the differences between a staffing agency and PEO, you’re not alone. Learn what sets these organizations apart and which could be right for your business.

What a Staffing Agency Does

Most people have heard of a staffing agency and they’ve been around a bit longer than PEOs. 

In the mid-20th century, agencies designed to help other companies with their staffing needs emerged in the United States. Most of the time, these agencies provided workers to a client work site on a temporary basis.

Today’s staffing agencies frequently offer additional services, and in many cases, can provide workers on a permanent basis. In fact, some staffing agencies specialize in finding and placing permanent employees, especially in certain industries where there is a high demand for specialized skill and talent.  However when you make a permanent hire through an agency, you assume responsibility for the employee and if you are not setup in that country as an employer you will not be able to compliantly payroll the worker and submit required taxes and burdens.. 

What a PEO Does

PEOs emerged in the 1980s in response to employers’ evolving needs. The 1980s and 1990s were an era marked by rapid global expansion, and many international companies found they needed more than what most temporary staffing agencies could provide.

The PEO was the solution. The PEO offers comprehensive HR services to the client employer. While some of these services overlap with some staffing agencies today, the PEO has traditionally offered payroll services, compliance monitoring, insurance, and more.  As they act as a co-employer it allows a company not set-up in country to hire staff out of country compliantly.  It also allows them to offer the worker similar offerings to their in country staff such as benefits and RRSP’s (401K). 

What’s the Difference?

While staffing agencies and PEOs do have a few services that overlap, there are at least two major differences between these two types of organization.

The first difference is key. Who will employ the workers

In the case of a temporary staffing agency, the agency supplies workers to client sites. These workers remain in the employ of the agency. The situation changes in the case of permanent employees. When you make a permanent hire through an agency, you assume responsibility for the employee and therefore would need to be set up in country to take on the employee onto your payroll.

The PEO, on the other hand, acts as a co-employer, which means they share responsibility for the employees. They’ll supply many of the HR services needed, but decisions about hiring, termination, and compensation are left up to the client employer.  If your employee is out of country the PEO will also assist with in country compliance, an important piece when hiring in a country where you are not aware of the employment laws and legislations. 

Another way to think of the difference is to think about what you’re outsourcing. Both organizations are focused on HR tasks around your workforce. With the staffing agency, you’re outsourcing your hiring process and the associated tasks, while with PEO, you’re outsourcing only the administrative tasks, payroll, and compliance associated with your workforce.

 

Finding the Services You Need

Global companies entering new markets face HR challenges from every direction. That can make it difficult to know who you should work with.

In some cases where you need assistance in finding the right candidate, it makes the most sense to work with a staffing agency. In other cases, where you already have your employee the PEO could be just what you need. There are even situations where it makes sense to call on both a permanent staffing agency and a PEO.

It ultimately comes down to knowing what services will best meet your business’s unique needs. 

Discover how the right partner can help you create a long and lasting relationship with those talented workers.

Topics: PEO Services, Outsourcing HR, Business Expansion

Stacey Jones

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