PEO vs HRIS: What’s the Difference?

In a small startup, Human Resources (HR) tasks such as ensuring compliance with regulations, employee and unemployment tax reporting, onboarding, and benefits administration are usually taken on by one or more members of a small team. As the company grows, these tasks are often outsourced to a third-party partner, known as a Professional Employer Organization (PEO). 

When a company wishes to establish an internal HR department, it will often utilize Human Resources Information System (HRIS) solutions to help its HR department be more efficient and organized. In this article, we will examine the difference between a PEO and HRIS system.

What does PEO mean? 

A PEO contracts with a company to provide administrative HR services, benefits administration, and employee tax reporting and payment. PEOs are a co-employer; for tax and benefits administration purposes, the workforce is technically employed by the PEO. PEOs do not interfere in the running of the company, and they do not have final say on hiring and firing employees.

What does HRIS mean?

HRIS stands for “Human Resources Information System”. An HRIS is a software system that helps automate and increase efficiency on many of the same HR tasks that a PEO handles, such as payroll, onboarding, and compliance. Most HRIS systems are cloud-based, that is, they are accessed by clients remotely and are paid for monthly (Software As A Service, or SAAS). In short, it one could say think of HRIS as a bridge between HR and Information Technology.

Some of the tasks that may be performed by an HRIS include:

1. Recruitment and Onboarding — HR software can streamline the recruitment process by automating job postings, tracking applicants, scheduling interviews, and sending automated emails to candidates. Once a candidate is hired, the software assists with onboarding, by creating and tracking new hire paperwork and ensuring that new employees receive necessary training.

2. Employee Management — An HRIS can help manage employee data such as personal information, job title, salary, performance, and benefits information. It can also track employee attendance, leave requests, and time-off requests. This information is available to authorized personnel in the HR department.

3. Benefits Administration — an HRIS can help manage employee benefits such as healthcare, 401(k), and other benefits by tracking employee eligibility, enrollment, and changes. It can also help with benefits communication by providing employees with access to benefit plan details and forms.

4. Performance Management — An HRIS helps manage employee performance by tracking employee goals, feedback, and evaluations. It can also assist with creating performance improvement plans, and provide supervisors with tools to track and manage employee progress.

5. Payroll Management — HR software may help automate payroll processes, such as calculating employee salaries, taxes, and deductions. It can also help with managing employee pay and issuing pay stubs.

6. Reporting and Analytics — HRIS software provides HR managers with access to data on employee performance, compensation, benefits, and other metrics. This data can be used to identify trends, create reports, and make informed decisions about HR strategy.

PEO vs HRIS: Side-by-Side Comparison

So how exactly does a PEO and an HRIS differ? Consider:

• A PEO can be thought of as a complete outsourcing solution for certain administrative HR tasks. An HRIS is a software solution that helps internal HR handle some of their tasks more easily. An HRIS is, with a more limited role, is therefore usually less expensive than a PEO. It should be noted, however, that even with an HRIS, a company must still have employees dedicated to human resources management.
• A PEO often offers additional services that are not available through an HRIS. For example, a PEO may provide employee wellness programs or recruitment services.
• Unlike an HRIS, a PEO is a co-employer alongside the client business. The PEO serves as the employer of record and thus shoulders liability for regulatory compliance and employee tax reporting. An HRIS (not being a legal entity) cannot perform this function.
• A PEO means better benefits. Because PEOs are the employers of records thousands of employees working under their many clients, they can negotiate lower benefits premiums than small or medium-sized employers would be able to on their own. While an HRIS can help keep track of benefits packages and payments, it can not help provide more competitive packages or administer those benefits as a PEO can.

HRIS vs PEO: The Best Choice for You

For companies that mainly want help administering payroll and benefits, ensuring regulatory compliance, and tracking this employee data, an HRIS will be a cost-effective and simple solution.

If a company wishes to provide better or less costly benefits packages, and outsource HR administrative tasks and regulatory liabilities to a third party, a PEO will achieve those goals.

Some providers, such as Rippling and ADP provide a combined PEO and HRIS solution that tries to take care of all of a company’s HR and payroll needs. 

Ultimately the decision depends on the company’s direction and immediate needs. If building a strong internal HR department is more important to management than the benefits a PEO may bring, an HRIS will be the best solution. Companies that don’t mind paying PEO fees in exchange for greater benefits packages and shifting the liability burden may prefer a PEO.