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PEO vs. HRIS – What’s the difference?


By Sherry Wangenheim

When you are early stage, HR management can be one of the most challenging issues for an entrepreneur.  Two common solutions that are used during the early seed stage are PEOs and HRIS systems.  Here’s a Q&A that might help you decide what’s right for you. that are often asked:

What is HRIS?

HRIS is a Human Resource Information System.  This tracks the people working at the company, when they started, how much they are getting paid, who they report to, etc.  Some HRIS systems have add-ons like recruiting, performance management, time tracking and even integrate to payroll systems.

What is a PEO?

A PEO is a Professional Employer Organization.  The PEO directly hires the people that you want to work for you organization, and those employees are leased back to your company.  All compliance aspects of HR are taken care of by the PEO – tax filings, leave management, payroll, etc.  Typically, you pay a flat percentage on top of an employee’s wages inclusive of all HR related services.

Some companies seem to use both, why?

PEO’s have HRIS integrated into their offering.  While PEO’s have made dramatic improvements, a PEO HRIS can still be a clunky experience for the employee.

Why would I use an HRIS exclusively?

  • HRIS gives you a central location to house critical personnel and payroll information about your employees.
  • You have a relatively simple payroll – one or two states, no hourly employees, etc
  • It is easy to run reports, create org charts and have all personnel information available in a safe and compliment manner.
  • Most HRIS value comes from their add-ons – payroll, recruiting, performance management – all can be integrated directly into an HRIS.  These can be added onto your subscription as your company grows and they become more important to your organization.

Why would you use a PEO?

  • If you are hiring in multiple states, have a fully remote and mobile workforce in the US and don’t want to deal with setting up legal entities and the tax filings associated with being in those states, a PEO can minimize the required filings.  Additionally, each state has a different set of labor laws, so a PEO has an expert you can make sure that your company’s policies aren’t operating in violation of  
  • You need advice on compliance management – Leave management is one of the most complex processes in HR.  PEO’s have staff that guide and lead the leave management process to assure compliance with state and local laws.
  • You want to offer robust benefits, more typical of a larger company.
  • Your company need the basics – an employee handbook or personnel policies to guide your organization.
  • You want to put off hiring an individual to manage HR as long as you can.  A PEO gives you the expertise without
  • Lastly, for most PEO’s, their HRIS is included.  Some PEO’s have better UIs than others, so if this is important to you, make sure you do a tour of an employee experience.

To summarize, HRIS is a bit like a menu where you can order ala carte, whereas a PEO is ordering a 3 course meal.  Both come with pros and cons.

Sherry Wangenheim is a start-up consultant who can help you set-up HR and financial systems.  Reach out to her via LinkedIn