It’s a common question growing businesses who need help with their human resources ask: What’s the difference between payroll outsourcing and Professional Employment Organisations (PEO)? And, which one is best suited to my business?

There’s little wonder so many business owners and managers get confused. They’re both designed to save on the internal resources, time and money of a business. They also typically use similar cloud-based payroll systems and have to abide single touch payroll laws as set out by the Australian Taxation Department. But, to work out which function will work best for your business, it’s essential to understand the basic tasks associated with each service, and how they align with your operating model.

What is payroll outsourcing service, and how does it work? 

A payroll outsourcing service, also known as a Payroll Service Provider (PSP), usually takes care of all the tasks associated with the payment of employee wages and PAYG tax submissions. When you have your payroll outsourced, the employer, being the PSP’s client, retains all employment responsibility.

How does outsourcing payroll work? 

If you want to solely outsource payroll and no other administrative functions, then a PSP might be the best option for you. A PSP will typically pay your staffs’ wages by gathering their information including their timesheet, hire date, title and rate of pay, and will calculate and process their due pay usually through a direct deposit.

How much do payroll services cost?

The cost for payroll outsourcing varies greatly, depending on company size, location, type of business and individual requirements.

Often you will not need to sign a contract for with a PSP, as they’re merely a vessel for outsourcing administrative functions when and if required.

What is a Professional Employment Organisation, and how does it work? 

A PEO is an outsourcing company that provides services to companies of all shapes and sizes. The organisation will act as your workers’ employer of record, in that they will legally employ your staff and pay them as their own employees, on a co-employment basis.

Many global companies will choose to partner with a PEO like Australia PEO if they would like to expand their business into Australia or internationally but don’t have the capabilities or need to set up a physical entity in the country to do so.

How does PEO work? 

If a company chooses to engage a PEO to become their workers’ employer of record, then all parties will undergo an onboarding process to ensure the employee is legally allowed to work in the country.

The client company will continue to manage all other necessary functions of the business in providing products or services to their customers.

PEOs will then process payroll for their employees, manage leave entitlements, withhold and pay tax, maintain workers’ compensation, offer guidance and handle many other tasks associated with their human resources.

How much does a PEO cost?

Many PEOs will charge a variable rate, depending on a vast array of factors. At Australia PEO, we follow a very simple fee structure. Contact us to find out how it works.

All PEOs require a contract before proceeding with the partnership.  

Does your business require a PEO or PSP? 

So, you’ve decided to outsource some of your HR functions. Now what?

Selecting the right HR outsourcing service is all about aligning your business processes with whichever supplier you choose to work with. Knowing how a PEO and PSP differs when the employer of record, payroll, leave entitlements, workers’ compensation and cost are concerned will guide through the decision making process.

If you already have a physical entity and you want to employ locally, then a PEO may not be suited for your business. If you want to employ staff in a different country, and you don’t want to set up a physical entity in the country to do so, then engaging a PEO like Australia PEO will allow you to start doing business in another country very efficiently and cost effectively.

On the other hand, for businesses who want to remain the employer of record for their staff, and simply need help to ease the load of payroll, selecting a payroll outsource provider might be the way to go.

Like Australia PEO, many PEOs offer outsourced payroll services as well, which means when and if you contact us, we’ll be able to advise you on the best route to take. Call or email us today, to find out how we can help you save on resources and time, by taking on some of your time heavy HR and administrative tasks.