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HR Outsourcing: PEO vs HRO

4 min read

What is HR Outsourcing?

HR outsourcing refers to delegating all or some of an organization’s human resources (HR) functions to a third-party service provider. These services may include recruitment, employee onboarding, payroll management, benefits administration, and other HR-related tasks.

Outsourcing HR functions has multiple benefits for companies. These include cost savings, access to specialized expertise, and improved compliance and legal compliance. Additionally, increased efficiency is achieved. HR outsourcing providers can offer tailored solutions based on the specific needs of the client company.

HR Outsourcing Providers

There are two main types of HR outsourcing companies:

Selective outsourcing: Outsourcing specific HR functions (small and mid-sized businesses usually choose this).

Comprehensive outsourcing: Outsourcing all HR functions (larger organizations select this option).

Outsourced HR providers offer different HR functions such as payroll processing, benefits administration, employee onboarding, compliance with employment laws and regulations, employee training and development, performance management, and more.

By outsourcing their HR functions to an external company, businesses can save time, reduce costs, and improve the quality and efficiency of their HR processes. HR outsourcing companies typically have a team of experienced HR professionals who can provide expert guidance and support to businesses of all sizes and industries.

Overall, the decision to outsource HR is strategic. It allows businesses to focus on their core competencies and growth strategies while leaving the HR management to the experts.

What is the Difference Between an HR Outsourcing Provider and a PEO?

A PEO and an HR outsourcing provider are both companies that provide HR services to other businesses. However, there are some key distinctions between them.

HRO Companies

Human resources outsourcing (HRO) is a popular business practice. It involves contracting with an external provider to manage certain HR functions. This could include anything from payroll and benefits to recruitment and training.

HRO provides basic HR functions all the way up to comprehensive offerings. Some functions include payroll processing, benefits administration, and recruitment. HRO companies let businesses scale and customize their HR service packages to fit their unique needs.

Unlike a PEO, an HR outsourcing provider does not enter into a co-employment relationship with its clients and does not become the employer of record for the client’s employees. The client company retains full control over its employees and HR management but outsources specific HR functions to the provider.


A PEO is a co-employment model. Your PEO provider becomes the employer of record for your employees and assumes certain employer responsibilities on your behalf. A PEO administers HR functions and frees you to focus on your business. This can be a great help to small and mid-sized, newer, or growing businesses.

PEOs can handle all HR-related tasks such as payroll processing, benefits administration, and compliance with employment laws and regulations. The client company keeps control of its employees’ day-to-day operations. The PEO takes on managing HR functions, however.


In summary, the primary difference between a PEO and an HR outsourcing provider is the nature of the relationship between the provider and the business they serve. A PEO enters into a co-employment relationship with its clients, while an HR outsourcing provider does not.

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