PEO VS Contracting

A PEO (Professional Employer Organisation) is an agency which helps companies scout and put to work the right human resources for business operations.

Of the 5 ways of international business expansion, PEO comes out ahead in multiple aspects. If you are a foreign company looking to start offices in the Indian region, a good PEO service in India will go a long way in increasing your productivity and profitability.

Today, we explore how professional employer organizations in India fare in comparison to contracting, as means of getting remote work done. We have already published comparisons between PEO and subsidiary formation and also pitted PEO against outsourcing.

Now, let us see whether PEO wins against contracting.

  1. Basics of PEO

A PEO acts as a legal employer for your remote team. Although such employees work fully for you, the PEO is the official Employer of Record for them. As a foreign entrepreneur, this takes certain responsibilities off your plate, allowing you to focus on business growth.

The PEO agency handles cost-effective services for HR, payroll, insurance, benefits, and risk management. Effectively, international PEO services allow you to hire employees offshore, which you legally cannot do because your business isn’t registered in that particular region. Here, a PEO acts as a middleman, and satisfies all the legal and business compliances.

  • Basics of Contracting

Contracting is a much more modularized and short-term solution as against PEO, which can become a long-term solution for hiring employees abroad. Contracting is also a smart solution for one-off, independent tasks which don’t affect your other operations.

With contracting, you are dealing with individuals who offer focussed efforts in order to complete an ‘isolated’ set of tasks. These tasks are likely standalone, and can plug into your existing setup without business interruptions. Contractors work a fixed set of hours at a fixed price.

  • Comparing PEO and Contracting
    • Exclusivity and complications thereof

Contractors can legally work for multiple companies at once. This affects you in two primary ways. Firstly, your contractor might be spread too thin working for too many clients at once. If a bigger, better-paying project comes along and the contractor is short of time, they will prefer the larger payoff, and maybe give less attention to your work. Secondly, a contract resource maybe directly working for a rival company!

With PEO, you need not worry about these aspects. Once human resources are identified, they work exclusively for you. They are not allowed to work for others at the same time, and therefore give you their undistracted attention.

  • Productivity and QA

Contractors work in near-autonomy. Once the project scope, pricing, and schedule is decided, contractors get to work independently. They work with their own resources, which may not be optimal for productivity. They work their own hours, and may not be available at your beck and call all the time. As long as they satisfy the terms of the contract, contractors may not be interested in going the extra mile for your project. This means you have very less control over the quality of the throughput, and risk leaving a lot on the table.

On the other hand, employees from a PEO are your own to mould. You can provide them with the best resources for them to give their peak effort, and use productivity tools and tactics to squeeze out the best in them. Underperforming employees are also yours to handle. Overall, PEO gives you a tighter command of your ship.

  • Cost

From a cost perspective, maintaining a team of contractors for long-term projects turns out to be very expensive. Rates depend on hours or deliverables. A contractor may charge between 30USD to 60USD per hour for hour-based contracts and in 4-figure ranges for deliverable-based pricing contracts. If you need on-the-fly changes (which are inevitable), this changes the scope of work, ultimately causing inflations in the contractors’ charges.

PEO prices, however, are negotiable, and will comply with the wage policy in India. They are calculated per employee, and don’t vary with slight variations in the work scope. On an average, PEO fees are between 40 USD per employee, per month to 160 USD per employee, per month. The agency also takes between 2-12% of the total payroll.

  • Hands-On Efforts Needed

This is possibly the only aspect where contracting wins. You need to give your attention to groom your PEO employees. Performance assessment, leave management, and productivity are your responsibilities.

But, like we discussed, contractors don’t have these overheads. They work majorly on their own, and you don’t need to keep an eye on them.

  • Choosing PEO Over Contracting

If you are sold on PEO, a wise strategy would be to shift from your current contract work to a long-term PEO. This will help you drive down the costs of getting remote work done, and enjoy better control over the work product. If you are looking for a global PEO agency to guide you through this process, take a look at our PEO service offerings. Remunance’s PEO and EOR services handle all non-core activities, leaving foreign companies with sufficient bandwidth to focus on expanding their core business in India. Moreover, being the EOR in India, we help companies hire a workforce and kick-start their business operations in mere days, negating the need to infuse additional time and resources in creating a legal entity in India.