Any business owner or HR manager with a growing business knows that workforce expansion is often necessary and inevitable. This is especially true for international companies 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 the country.

When it comes to employing people, there are different partnership options to consider, and it can be difficult to know exactly which type of organization you should work with. Do you need the services of a staffing agency or do you require the services of a professional employer organization (PEO)? 

Learn the differences between a staffing agency and a PEO to help make the right decision for your business.

What Is a Staffing Agency and What Does It Do?

In the mid-20th century, staffing agencies emerged in the United States to help companies fill urgent and temporary staffing needs. Most often, these agencies provided workers to a client for on-site work and 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 skills and talent. However, when you make a permanent hire through an agency, you assume full responsibility for the employee. If you are not set up as an employer in the country the employee will be working in, you will not be able to compliantly payroll the worker and submit required taxes and remittances.

What Are PEO Companies and What Do They Do?

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 support 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. However, they also act as a co-employer and take on the legal responsibilities for a company’s employees. This allows the company to compliantly employ and pay workers out of the country without having to set up infrastructure on their own.

What’s the Difference?

While many of the services offered by staffing agencies and PEOs overlap, there are at least two major differences between these two types of organization:

Difference #1: Who Is Hiring?

Both staffing agencies and PEOs are focused on workforce HR tasks, but with a staffing agency you’re outsourcing your hiring process and the associated tasks. With a PEO, you’re doing the hiring on your own and only outsourcing the administrative tasks, payroll, and compliance associated with your workforce.

Difference #2: Who Employs the Worker?

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 a staffing agency, you assume responsibility for the employee and therefore would need to be set up in the country to legally employ and pay the employee.

On the other hand, the PEO 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 to the client employer. If your employee is out of the country, the PEO will also assist with in-country compliance, an important piece when hiring in a country where you may not be familiar with the employment laws and legislations.

Finding the Services You Need

Global companies entering new markets face HR challenges from every direction, which 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 have already chosen which employee to hire, working with a PEO like The Payroll Edge could be the right choice. In some circumstances, it might make 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.