What is the Difference Between PEO and HCM?

What is a PEO?

A professional employer organization, or PEO, is an HR outsourcing provider that operates in a unique relationship known as co-employment. The PEO, which becomes the employer of record for your employees, acts as an administrative employer. In other words, the PEO processes payroll, withholds and remits payroll taxes, administers benefits, manages workers’ compensation and any related claims, provides guidance and updates on regulatory compliance, assists with complex HR issues and strategic initiatives such as retention and recruiting, and more.

Within the co-employment arrangement, your business retains control over all employees and manages the day-to-day operations. You make all business decisions, supervise your employees, decide who to hire, promote, or terminate, choose which benefits to offer, determine employees’ wages, assess workers’ performance, and more.

With some PEOs, HCM technology is also included as part of the services provided, giving you access to a range of HR technology applications at an affordable cost. HCM technology for PEOs, such as at G&A Partners, may be integrated under a single sign-on (SSO), which means your team can access all applications using one login and data flows between the platforms.

What is HCM software?

Human capital management (HCM) is a strategic approach to managing HR that aligns human resources practices with your company’s business goals and objectives. HCM is more than just processing payroll, administering benefits, or ensuring compliance with labor laws. It is also an approach that values employees as your greatest asset and optimizes your workforce to drive engagement and productivity.

In terms of software, HCM is a single, unified technology system designed to support and streamline human capital management strategies. HCM software integrates various HR functions, from core tasks such as payroll, benefits administration, and compliance to strategic functions like talent acquisition, performance management, and learning and development.

By integrating these platforms within one system, HCM software can also provide real-time data and analytics, allowing HR leaders and decision-makers to make data-driven decisions about the workforce.

What is the difference between HCM and PEO?

Both PEOs and HCM software provide businesses with tools to improve how they manage HR tasks and responsibilities. So, how are they different? On a high level, a PEO specializes in managing HR for businesses as an outsourced service, while HCM software gives businesses the tools they need to perform HR functions on their own.

Let’s review some of the primary differences of HCM vs. PEO:

HR Services

• A PEO offers a comprehensive HR solution that includes (but is not limited to) human resources experts who manage your day-to-day HR tasks and provide compliance and workplace safety guidance. A PEO also provides you with access to affordable employee benefits and HR technology.
• HCM software is a do-it-yourself solution that includes integrated applications that help you manage daily HR tasks, such as payroll and benefits administration, and implement strategic HR, such as recruitment, onboarding, and performance management.

HR Support

• With a PEO like G&A Partners, you have a team of HR experts ready to help you with daily administrative tasks. They can also provide guidance on more complex HR situations, such as compliance, employee conflicts, or the evaluation of employee benefits.
• HCM software may come with initial support to help you get started within the system, but most HCM software providers do not have dedicated HR specialists to assist you with managing your HR.

HR Technology Support

• Many PEOs provide training on their HR technology system and can assist you if you have questions in the future. At G&A, our onboarding team also works with you to set up the system prior to the first payroll.
• With HCM software providers, tech support can vary. They may assist you with setup initially, but typically, your team will be responsible for learning and setting up the system.

Compliance Support

• At a PEO like G&A Partners, compliance and HR experts track labor laws and regulations, provide updates when requirements change or new laws take effect, and offer suggestions and best practices to help your business maintain compliance. Our HR technology system is also updated regularly based on the latest federal and state requirements. For example, if a state changes its minimum wage rate, the system is updated to reflect that change.
• HCM software may alert you to compliance issues or include system updates based on recent laws and regulations, but it may not give you access to HR experts who can provide insights on the latest labor laws or recommendations on compliance best practices.

What are the benefits of working with a PEO vs. HCM technology?

One of the chief benefits of working with a PEO vs. HCM software is the level of service a PEO provides. Let’s face it: Talking to a chatbot or sending emails to your HCM software provider that go unanswered can be frustrating. That’s why many businesses have turned to PEOs with a strong service reputation to get the support they desire. At G&A, our client support ranks best-in-class within the HR outsourcing industry.

Other common reasons that small and mid-sized businesses choose a PEO over HCM software:

• A lack of internal resources to manage your HR. With a PEO, you gain a partner who will handle administrative tasks on your behalf and can advise you on strategic HR initiatives that will help strengthen your company culture and improve retention and recruitment efforts.
• Concern about regulatory compliance. The regulatory landscape is complex and ever-evolving, and without proper expertise, your business may be at risk. PEOs provide insight and guidance to help you protect your business from noncompliance.
• Your team lacks the time to manage HR or HCM software. Your team is busy with day-to-day responsibilities, so it may not be feasible to also task them with managing HR and maintaining HCM software. With a PEO, you can offload that burden to a team of HR experts.
• You want competitive employee benefits. PEOs offer a comprehensive HR solution and can provide access to Fortune 500-level employee benefits at affordable rates, including medical plans, life insurance, retirement plans, dental, vision, employee assistance programs, mental health resources, pet insurance, and more. They’ll also administer the benefits on your behalf.