Difference Between PEO and Payroll Services | What Works Better in India?

July 14, 2023
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Employment and HR compliance in India made easy
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Expanding business in a country as diverse as India is tricky. It comes with complexities of setting up systems in line with central and state laws, managing payroll, compliance and more. Undoubtedly, payroll management remains one of the most challenging tasks.

In fact, managing payroll is not only challenging but also laborious. It comes with a laundry list of tasks of tackling: 

  • Central, state taxes and insurance
  • Tax filing and advance tax calculation based on investments declared by employees
  • Flexible benefits
  • Contribution to Employee Provident Funds
  • Entire paperwork, like Form 16, Form 12ab

Handling all these tasks in-house can be time-consuming, especially for small to medium-sized companies. Outsourcing this function allows your key employees to focus more on critical business activities that involve strategizing. 

Professional Employer Organisations (PEO) and Payroll Service Providers (PSP) are the top choices for outsourcing payroll. Which one will be better for you? Let's find out in this post. 

What is PEO service? 

PEO is a service-based organisation that takes all HR tasks off your plate: payroll, benefits, compliance etc. It basically enters a joint-employment relationship with companies and becomes a co-employer for your employees. 

PEOs usually help with the following:

  • Payroll and tax filing
  • Managing benefits
  • Compliance
  • talent management
  • Recruiting and onboarding

What Are Payroll Service Providers?

A PSP can handle all payroll functions on your behalf. But they stick to being a service provider and do not enter into any joint co-employment contract for employees. It also means they do not share any legal burden. 

PSPs typically offer the services given below :

  • Payroll calculation and processing 
  • Tax withholding and filing
  • Detailed payroll reporting and paperwork

PEO vs Payroll Services | What's the Difference?

To find which one is right for you, let's see the difference between PEO and Payroll services in depth. 

PEO PSP

Co-employment

Yes

PEOs enter a joint contract and become a co-employer

No

PSPs stay as a third-party service provider offering only payroll management

Control over employment decisions Yes

PEOs have limited control over hiring or terminating decisions (as they are co-employer). In addition, they have full control over HR tasks

No

PSPs have no control over employees

Liabilities Yes

As PEOs enter a joint contract, they also share the liabilities and any other associated legal risks.

No

When it comes to standard PSPs, employers have the sole responsibility for employees and their compliance.

Workers compensation Yes

PEO services take the ownership of helping you get the right workers' compensation insurance and also manage your workers' compensation claims.

No

Working with a PSP means you are responsible for getting the right workers' compensation insurance and managing your workers' compensation claims.

Benefits Yes

PEOs offer good employee benefits packages and as they have good relationships with different service providers, you can also expect to get great deals

No

PSPs typically do not help with employee benefits.

What HR tasks are usually included
  • Hiring
  • Onboarding
  • Payroll management
  • Performance management
  • Compliance
Limited to payroll
Cost Higher

As PEOs take care of multiple HR functions, they cost higher than PSPs.

But PEOs take more tasks off your plate, giving you potential for long-term cost savings.

Lower

PSPs cost less but come with the additional cost of having a big HR team in-house to handle all other HR tasks they don't cover.

Local entity needed Yes

PEOs require you to have a local entity in the country or region you are hiring

Maybe

PSPs may not require you to have a local entity. It completely depends on the type of provider: whether it’s local or global.

PEO vs Payroll Company | Which One Solves Your Problem?

Both PEOs and PSPs can help with payroll management. But both come with the additional complexity of setting up and operating a local entity (which is not at all easy). 

Establishing a local entity for your business in a new country (especially a country as diverse as India) is a lot of work with:

  • Time-taking procedures involving a lot of resources
  • Upfront investments
  • Compliance with local laws and regulations

Then what's the best solution?

If you are looking to hire and expand in India for the first time, an  employer of record (EOR) is a way better choice over PEO and PSP. An EOR can help you onboard your dream hires in another country without establishing a local entity. With a co-employment agreement, they become employers on paper and manage the entire employee's life cycle. 

EORs typically handle payroll, employee benefits, taxes, compliances and human resource administration. So you get services beyond payroll and also let go of the burden of establishing a local entity. 

The top benefits of partnering with an EOR are:

  • Helps in compliance with local laws
  • Reduces entry barrier to new markets
  • Saves time by removing the need to establish a local entity
  • Takes ownership of all HR tasks: payroll processing, tax compliance, employee benefits administration and legal compliance
  • Lowers business risks by becoming legally liable for employees
  • Reduces costs of establishing entities and managing HR tasks in-house
  • Makes scaling in new geographical regions easier. 

EOR is the faster and more cost-effective option for hiring talent and managing payroll in India.

How Rapid EOR Can Solve All Your HR Issues in India

With deep expertise in India, Rapid can simplify hiring and expansion in India for you. Our EOR services are not limited to payroll, but you also get support for:

Recruitment: With our integrated service marketplace, you can get in touch with recruiters who help you find the top talent in the country.

Background verification: We have partners like SpringVerify for reliable background verification. You get three packages to choose from and options of advanced checks like credit verification and drug tests, too.  

Flexibility to implement your organisational culture: You can define your policies for benefits, leaves, etc.

Benefits: Rapid offers flexible medical insurance plans so you can easily choose one as per your benefits policy:

Here are the three plans we currently offer:

1. Pro - Coverage up to ₹500,000 for the employee only

2. Power - Coverage up to ₹1,000,000 for the employee, their spouse and up to 4 children.

3. Premium - Coverage up to ₹2,000,000 for the employee, their spouse, up to 4 children and parents or parents-in-law.

Other HR tasks: Comprehensive services, including onboarding, contract management, compliance or legal, leave management and more.

Flexible workspace solutions: Unlike other platforms that limit you to hiring only remote employees, Rapid allows you to choose/rent office spaces and have on-site locations. 

You get all this while also making some savings. Rapid exempts non-salary payments like office space rentals and equipment purchases from additional GST charges, saving you almost 18% tax.

Schedule a demo call today to get an end-to-end solution to payroll and all HR challenges in India. 

Frequently Asked Questions (FAQs)

What is the difference between PEO and EOR?

The primary difference between a PEO and an EOR is that an EOR can hire on your behalf and doesn't require you to have a local entity. On the other hand, a PEO partners with organisations that have local entities. 

What is the difference between an employer of record and a payroll company?

An employer of record offers end-to-end HR support for onboarding, benefits administration, payroll management, etc. On the contrary, payroll companies stick to payroll management only. 

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