Payroll Service Provider (PSP) & PEO, What’s the Difference?
There are many factors to consider when choosing between a professional employer organization (PEO) and a payroll service provider (PSP). To make the best decision for your business, it is important to understand the difference between these two types of services.
A PEO is a company that provides HR outsourcing solutions. A PSP is a company that provides payroll processing services. Both types of companies can save businesses time and money by handling administrative tasks such as payroll, benefits, and compliance. However, there are some key differences between PEOs and PSPs that businesses should be aware of before making a decision.
PEOs offer a comprehensive suite of HR services, including employee recruitment, training, and development. PSPs typically only offer payroll processing services. When choosing between a PEO and PSP, businesses should consider their specific needs and budget.
Questions to ask when deciding on a PEO or PSP include:
– What type of services does the company offer?
– Does the company have experience working with businesses in my industry?
– What is the cost of the services?
– What are the terms of the contract?
What Is a PEO.
A Professional Employer Organization (PEO) is a company that provides a complete range of employee-related services to small and medium-sized businesses. These services can include payroll, benefits, workers’ compensation, human resources, and compliance with government regulations.
PEOs are often referred to as “employee leasing companies” or “administrative services organizations (ASOs).” They are regulated by the U.S. Department of Labor (DOL) and the Internal Revenue Service (IRS).
PEOs typically enter into co-employment relationships with their clients. In this type of arrangement, the PEO becomes the employer of record for tax purposes, while the client retains control over the day-to-day operations of its business. This arrangement allows small businesses to enjoy many of the same economies of scale and access to talent that larger businesses have.
PEOs typically charge their clients a percentage of payroll as a fee for their services. The average fee charged by PEOs is between three and seven percent of payroll.
PEOs assume liability for employment practices: When you outsource your HR functions to a PEO, you transfer some of the legal liability for employment practices to the PEO. For example, if an employee sues your company for discrimination or wrongful termination, the PEO will be responsible for defending the lawsuit (up to certain limits).
PEOs are experts in employment law: Because they handle HR functions for multiple clients, PEOs have a deep understanding of employment law and how it applies to businesses like yours. This expertise can help you avoid costly mistakes that could put your business at risk.
What Is a PSP.
A payroll service provider (PSP) is a company that either assists with or assumes all aspects of payroll on behalf of another business often through the use of a cloud-based payroll system coupled with an 800-number customer support line. PSPs process payroll for your workers as indicated by the pay schedule you set, and it incorporates the deductions for employee checks, such as taxes and benefits premiums.
Under your EIN, PSPs can also prepare, file, and pay your federal unemployment tax (FUTA) returns as well as your quarterly business tax returns. They can also file and distribute your W-2 and W-3 forms. Naming your PSP as reporting agent will allow it to contact the IRS on your behalf to resolve tax issues. However, unlike PEOs, PSPs do not have co-employment agreements but rather set per-employee pricing contracts.
PEOs vs. PSPs
PEOs are an alternative to traditional employer arrangements, in which the client company is responsible for all HR functions. PEOs can provide economies of scale in purchasing benefits and insurance, as well as access to HR expertise that might be unavailable or too expensive for the client company to develop internally.
PEOs are also subject to certain regulatory requirements, such as complying with federal and state employment laws, that traditional employers are not.
When choosing between a PEO and a traditional employer arrangement, it is important to consider the size and needs of your business, as well as your budget.
How to Tell the Difference Between a PEO and a PSP.
Lets take a look at a side by side comparison of PEO vs. PSP
| PEO | Payroll Service Provider (PSP) |
|---|---|
| Extensive services provided | Limited to payroll and sometimes benefits and other light HR services |
| Higher fees but potential overall cost savings when incorporating insurances | Lower fees but potentially higher overall costs |
| Co-employer arrangement | No co-employer arrangement |
| Thorough risk management, compliance assistance and shared legal burden | No risk management or shared legal burden offered; a PSP may assist with tax and payroll compliance |
| Employer of record | Contracted provider |
Questions to Ask When Deciding on a PEO or a Payroll Service Provider.
Once you’ve considered the above factors, there are a few key questions you should ask when deciding between a PEO and PSP:
-What types of HR services do I need?
-Do I want my employees to be considered employees of the PEO/PSP?
-How much will it cost to set up and maintain a relationship with a PEO/PSP?
-What are the potential savings associated with using a PEO/PSP?
Conclusion
If you’re trying to decide whether a PEO or a PSP is right for your business, there are a few things to consider. First, think about what services you need and what type of employer-employee relationship you want. A PEO can offer a wide range of services, from payroll and fortune 500 caliber benefits to HR support, but it’s important to make sure they’re a good fit for your business. A PSP is typically more focused on providing payroll and benefit administration services.
Once you’ve considered the services you need, ask yourself some questions about the type of employer-employee relationship you want. Do you want more control over your employees? Or do you want to outsource some of the responsibilities of being an employer? If you want more control, a PSP might be a good option. If you’re looking to outsource some of the responsibilities of being an employer, a PEO might be a better option.
Ultimately, the decision between a PEO and a PSP comes down to figuring out what services you need and what type of employer-employee relationship you want. By considering these factors, you can make sure you choose the option that’s right for your business. Contact the team at Peo-marketplace.com to help search for the right PEO.