PEO VS Outsourcing
Understanding the basics of PEO and Outsourcing
In this blog, we compare two ways of getting remote work done, especially in India: PEO VS Outsourcing.
A PEO (Professional Employer Organization) is a company that acts as a legal employer for your remote team in India. The employees under a PEO agency work fully for you. The PEO agency handles cost-effective services for HR, payroll, insurance, benefits, and risk management. Because you don’t want to register a corporation in India, you consequently cannot hire employees in India. This is why a PEO acts as a middleman, and satisfies all the legal and business compliances of hiring employees in India.
When you outsource, however, you don’t have a liaison with the human resources you are contracting. You need not bother with business compliance because the parent outsourcing organization is responsible for it. You are essentially saying, “Here is a set of tasks. Do these for us and we will pay you.”
Both these methods of hiring remotely in India have their own characteristics. A comparison of these characteristics is presented further.
Comparing PEO and Outsourcing
1. Turnaround times
The turnaround times for both PEO and outsourcing are more or less the same. Once you have identified the remote resources, your employees in India in either model can begin business operations with virtually no delays.
With PEO, your employees in India practically work for you. The PEO agency does not interfere in your business operations. Your remote team will conform to your business policies, work on the tasks you allocate to them, put in the hours you decide for them. You control their performance, conduct appraisals, and fine-tune their way of working. If you take away the intermediary PEO agency, there is virtually no difference between the way you handle PEO employees and your own.
With outsourcing, you cede full control to the outsourcing organization. If an employee is underperforming, it is up to the organization to take the necessary corrective actions. They also decide the working hours, way of working, and the company policies.
When you are getting remote work done in a foreign country, confidentiality becomes a tricky point. With PEO, you have the full security of having your work protected under confidentiality clauses. And because you are the one providing the resources to your PEO employees in India, you can ensure that you provide leak-proof, secure infrastructure.
You lose this peace of mind when outsourcing. All the infrastructure is provided by the parent outsourcing organization, and you have no say in the type of resources the employee is given to work with.
When you outsource work to India, you have at your disposal a remote team working for you for a finite period of time for the duration of a particular assignment. Not everyone will be utilizing their full working hours just for your project. Moreover, if you want to continue to retain your outsourced team for full-time dedicated work, it turns out to be a costly affair.
On the other hand, PEO can help you with sustained and steady business growth. Your PEO employees are onboarded full-time and they focus their efforts only on your work. They are as good as working employees on your constant payroll. With PEO, you can achieve the longevity you need for quality, long-term work.
5. Hands-On Efforts Needed
This is possibly the only factor where outsourcing trumps PEO. With PEO, you need to spend time and effort governing your employees in India. You need to assess their performance, manage employee leaves, and also channel their work-hours for maximum productivity.
Outsourcing doesn’t have any of these overheads. Once you have defined the scope of work, you don’t need to bother with handling the employees. You are only concerned with the throughput and deliverables.
This is the major differentiator which sways people in favour of PEO. Outsourcing is costlier than PEO in every regard. To understand this better, let us take the example of a marketing division, tasked with selling units of a vehicle component for a manufacturer.
With outsourcing, you pay your outsourced employees per unit sold through their marketing effort. If they do their job well and sell more units than you anticipated, that’s commission you didn’t plan on paying to the outsourcing agency.
However, PEO follows the cost-plus model of payment. Your PEO employees are paid fixed wages, no matter their per-unit performance. If they sell better, you don’t have to bear the cost behind every unit. Of course, you can have incentives for such high-performing employees, but that is something you solely control. Moreover, PEO costs can be distributed over employee benefits, perks, and stakes.
Choosing PEO Over Outsourcing
If you are sold on the PEO model, a wise strategy would be to move your outsourced resources to PEO. This will help you drive down the costs of remote work, and enjoy better control over the quality of output. If you are looking for a solid PEO agency to guide you through this process, take a look at our PEO service offerings.