Date Added: August 01, 2008 07:29:03 PM

HRO stands for Human Resources Outsourcing and PEO stands for Professional Employer Organization, and there are differences between the two.

Although an HRO is similar to a PEO, there is one important difference—a PEO becomes a co-employer, which begs another question—what is co-employment? Co-employment is a relationship wherein the PEO acts as the administrative employer and the client acts as the worksite employer. The co-employment model is based on a commitment by the PEO to share employment-related risk with clients, thereby reducing legal risk and financial exposure for clients. HROs are not employers and therefore cannot share employment-related risk, which leaves clients open to increased legal risk and financial exposure.

The co-employment model also allows for worksite employees to be included in key insurance plans such as large group medical insurance plans. The HRO model cannot provide access to large group medical insurance because they are not a recognized employer of the client’s worksite employees. Participation in a large group medical insurance plan offered under the co-employment model can provide extra protection for the client when facing, for example, the impact of a serious worksite employee medical condition. A client participating in a large group medical plan would not experience the same level of rate increase as the result of an expensive worksite employee medical condition that a client with their own small group coverage would experience because the impact would be spread across or absorbed by the large number of employees in the large group plan. Under the HRO model, a client must obtain medical coverage on their own as a small business, and policy premium costs and deductibles are based solely on the medical history of their employees. This could make the cost of coverage much more expensive. And because the HRO model does not provide co-employment, they cannot offer access or protection from a large group medical plan. This could result in financial exposure that can last for years if a worksite employee has serious and costly medical condition.

In addition to large group medical Insurance plans, the co-employment model allows for worksite employees to be included in insurance plans like group workers’ compensation insurance. It can be more difficult for a small- or medium-sized business to access cost-effective workers’ compensation insurance without the buying power of a well-managed larger group, which spreads the risk over a larger pool.

Additionally, the co-employment relationship requires the PEO to share responsibility for this risk in partnership with the client. The HRO model cannot share this risk since there is no employment relationship and therefore no legal basis for providing coverage to the employees. Well-managed PEOs also provide support to reduce financial and legal exposure, including back-to-work and worksite employee safety training programs.