What Is The Difference Between Payroll And PEO?

Payroll management is one of the most challenging tasks of any organization because it has to be done with maximum accuracy and efficiency. The major difficulty in payroll management is that it is a multifaceted concept due to which you must be aware of paying employment taxes and making sure your employees are being paid on time according to laws and regulations.


As it can be quite difficult to manage all of these at the same time, more and more companies now depend on accounting firms in Singapore that provide professional payroll services. These services are suitable for all types of companies. Whether you are running a small-scale business or a multinational enterprise, you can find a suitable solution for your business.


The two main types of payroll outsourcing are the Professional Employer Organization (PEO) and Payroll Service Provider (PSP). The purpose of this post is to differentiate between PEO and PSO so that you can choose a suitable payroll service for your business.  


Before learning about the major differences between PSP and PEO, let’s start with some basics:

What is PEO?

Professional Employer Organizations (PEOs) provide all kinds of HR-related services for small and medium-sized organizations. Such services include taxation, accounting, auditing, recruiting employees, government compliance, and payroll services.


Getting the services of a PEO involves getting into a legal contract with the PEO that acts as a co-employer so they can take up the legal responsibility of paying the client and overall payroll management of the business.  

What is PSP?

A Payroll Service Provider (PSP) is responsible for payroll management and paying the taxes. However, with a PSP, the legal liability of paying the employees and taxes is retained by the company as the PSP will not be entering into the contract as a co-employer.


The following are the major differences between PSP and PEO when it comes to the three most important factors of payroll services:

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1. Employer of Record

A PEO is a reliable option for co-employment, which means the employer can easily outsource important administrative tasks.


There are a variety of business tasks and functions that can be outsourced, like managing employee benefits, staff’s compensation, insurance, and overall payroll management. Accounting firms in Singapore allow businesses to get professional and reliable services from experts who have years of experience in payroll management. 


On the other hand, a PSP usually has limited options in regard to payroll management and services. It has options like the administration of employee benefits, compensation, and insurance. 

2. Employees’ Compensation

If you choose to outsource your payroll to a PEO, you will be getting a comprehensive employees’ compensation plan, along with maximum insurance. Whereas, a PSP does not provide insurance for workers’ compensation.


However, such laws can also vary from area to area, so you might have to partner with a local insurance agent to fulfil this objective. It should be noted that a PSP typically has a variety of payment options compared to PEO. 

3. Cost

The cost can be the make-or-break factor when it comes to hiring an accounting firm in Singapore for payroll services. There is no one specific answer related to the comparisons between the costs of PSP and PEO because there are many different pricing models used by various accounting firms in Singapore.


Generally, the pricing of PSP is much more flexible than PEO because they ask for a certain amount of compensation in exchange for a long-time partnership. 


Generally, a legal contract is not needed when you are getting payroll services from a PSP. On the other hand, you must sign a legal agreement with a PEO. It can create issues in certain situations. For instance, if you are not happy with the services provided by the PEO, you might have to pay extra charges for terminating the contract.


On the other hand, a PSP is more flexible as most of the PSPs allow companies to opt-out whenever they want because the services are provided on the basis of the pay period. 

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In a Nutshell

In short, your decision to choose a PSP or PEO depends on your business requirements and goals. In other words, before making a decision, it is important to define your business requirements and goals. Indeed, both options have benefits.


For a startup that employs only two people or so, payroll services make a lot of sense. However, for businesses that employ three people or more, a PEO can be a better option.


For more information, feel free to get in touch with us.