Peo vs. In-house Hr: What’s Better for Startups?
Starting a startup is swimming without a life vest, you are dealing with product, customers, marketing, sales, and somewhere in the middle you look around and go… hey, who is doing HR?
When you are just starting to build your business, the question that probably came to your mind is: Do I need to get an in-house HR or outsource with a PEO?
The answer? It varies, and no, that is not a cop out. Each startup is individual and what suits one company does not necessarily have to be the most suitable tool to another one. Nevertheless, there is nothing to fret about, as we are going to run you through the major discrepancies, advantages, and disadvantages of each, so that you could make the appropriate decision regarding your business.
First, What Is a PEO?
A PEO (Professional Employer Organization) is an external company that takes care of your HR tasks under a co-employment model. This implies that they co-employer your business. You continue to direct your team and business choices however payroll, benefits, compliance, hiring documentations, and even staff relations are dealt with by the PEO.
Fancy Sounding, But Necessary?
Now compare that to in-house HR, where you hire an employee (or team) to manage all things human resources internally. You maintain full control, but you’re also responsible for everything from policies to payroll errors.
Which path is then more sensible to a startup?
Let’s Talk Cost (Because Budget Matters)
Startups are lean operations and every dollar matters. The cost of employing a full time HR individual includes a salary, benefits, software expense and overhead. That is not even mentioning the time expended in recruiting and integrating the appropriate individual.
PEOs normally bill a fixed monthly price or a proportion of your wage bill. That fee often includes access to enterprise level benefits (like healthcare plans your tiny startup couldn’t get on its own), compliance support, and HR tech platforms.
If you’re comparing apples to apples, working with a peo for startups can often be more cost effective especially if you’re growing quickly but not ready to build a full HR department.
What of Control and Culture?
Good question. Among the largest start up concerns with HR outsourcing is: “Would we lose control of our culture?”
Hardly so. By using a PEO, you continue to control your group, establish your ideals and operate your business your own way. They merely offer back-end support system and advice. It is like having a team of expert HRs in your side without having to increase your office space and budget.
With that said, in case the very identity of your company is highly wrapped up in the way you recruit, employ, or otherwise deal with people, having an in-house may better suit your culture aspirations. Because at the end of the day, an internal HR manager has the opportunity to attend meetings, experience team dynamics himself or herself and offer on the spot assistance.
The actual question then, is this: Are you ready to develop that muscle now or do you want to introduce a partner who will help you as you climb?
Who does What: Compliance, Benefits and Payroll
This is where PEOs come in their element.
They assist you to remain in conformity with the labor laws, tax filings as well as benefits regulations. For small businesses navigating complex employment laws (especially in multiple states), that kind of support can be a lifesaver. A single error on payroll taxes? That can be (and quickly) expensive.
Working with a peo for startups gives you peace of mind. There is no need to become an expert in HR law in one day because they have done it on your behalf. And, they usually have competitive employee benefits that can compare with Fortune 500 companies. That can be an enormous attraction when you are seeking to entice the best people but you do not have an enormous salary budget.
Elasticity and Expandability
Startups are synonymous with change, new markets, new products and perhaps even new locations.
A PEO makes it easier to scale up (or down) without having to restructure your HR department. No matter whether you are taking on one or 20 new staff members, your PEO can scale up support without you having to recruit more people internally. This scalability allows you to concentrate on expanding without being dragged in the mud by administration.
Conversely, you can have greater long-term control, by developing an internal HR team internally. Once your business starts to mature a person who literally eats and sleeps your company day in and day out can be invaluable in helping to shape culture, policy and performance on a more personal level.
So, What’s the Verdict?
No universal solution exists in this case. PEO is the way to go if you are a high-paced startup and you need HR support you can afford and rely on without having to establish a department completely. Considering the fact that you can concentrate on making a well-knit team and have a tailored approach to culture on day one, in-house HR might pay off.
The point is, whether you decide to do it or not, (manage HR that is), one thing you must keep in mind is that getting it right is not a choice, it is a necessity. Your people are the foundation of your startup, whether we are talking about compliance, benefits, and employee happiness.
Select the assistance that assists you in developing firm, literally upwards.
