What Is a PEO?

Let’s start simple. A PEO, or Professional Employer Organization, is a company that helps you manage HR-related tasks. Think payroll, benefits, taxes, compliance, hiring support, and even risk management.

They step in as your co-employer, so while you still control your business and manage your team, the PEO takes care of the “people operations” side of things.

In short: they make HR easier, especially for small to medium-sized businesses that don’t have a full internal HR team.

How Does a PEO Work?

Here’s where it gets interesting. When you partner with a PEO, you enter into something called a co-employment agreement. That doesn’t mean you’re giving up control, it just means that the PEO shares certain legal and administrative responsibilities with you.

Here’s how it typically works:

• You: Still manage day-to-day operations, hire/fire employees, and make all business decisions.
• The PEO: Takes care of HR tasks like payroll, employee benefits, workers’ comp, and staying compliant with labor laws.

Employees are technically “co-employed” by both your business and the PEO, which allows the PEO to handle payroll taxes and access better benefits packages thanks to pooled buying power.

What Services Do PEOs Offer?

Not all PEOs are created equal, but here’s a breakdown of what most of them offer:

1. Payroll Processing: PEOs handle everything related to payroll: calculating wages, managing direct deposits, withholding taxes, filing payroll taxes, and sending out W-2s.

2. Employee Benefits: One of the biggest perks of working with a PEO is access to benefits that would otherwise be too expensive or complicated to offer. That includes:

• Health insurance
• Dental and vision
• Retirement plans (like 401(k))
• Life and disability insurance

3. HR Support: From onboarding new hires to helping you handle employee disputes or terminations, PEOs offer real-time HR guidance that keeps things running smoothly.

4. Compliance and Risk Management: Employment laws can be a minefield, especially if you operate in multiple states. PEOs help keep your business compliant with local, state, and federal regulations. Some even help with safety training and workplace risk assessments.

5. Workers’ Compensation: Most PEOs provide access to a workers’ comp policy under their umbrella, which often means better rates and less paperwork.

6. Hiring and Onboarding: Some PEOs help you write job descriptions, screen candidates, and set up onboarding processes. It’s a helpful add-on, especially if you’re growing fast.

Who Should Use a PEO?

PEOs aren’t just for large companies with deep pockets. In fact, they’re often most useful for:

• Small businesses that want to offer competitive benefits but don’t have HR staff.
• Startups that need to stay lean but compliant as they scale.
• Companies hiring in multiple states (or countries) and don’t want to keep up with all the different laws.
• Business owners who want to spend less time on admin and more time actually running their company.

Benefits of Using a PEO

Here’s what you (and your team) stand to gain:

• Save time on payroll, taxes, and benefits admin
• Reduce risk by staying compliant with ever-changing laws
• Access better benefits at more affordable rates
• Improve employee experience with more support and structure
• Stay focused on growth, not paperwork

Things to Keep in Mind

Before you sign on with a PEO, there are a few things to consider:

• Cost: PEOs typically charge either a flat fee per employee or a percentage of your total payroll. Make sure you understand the pricing structure.
• Level of control: You’re still the boss, but you’ll need to work within the PEO’s systems and processes for certain things.
• Contract terms: Look out for cancellation fees or long-term commitments.

What’s the Difference Between a PEO and an HR Software?

Good question. While both help with HR tasks, there’s a key difference:

• HR software gives you tools to manage HR yourself—think of it as a digital assistant.
• PEOs go one step further by doing a lot of that work for you. They’re more hands-on and often take on legal responsibility for certain HR tasks.

In many cases, PEOs actually include software platforms as part of their service, so you’re getting both tech and real people behind the scenes.

Final Thoughts

If HR headaches are slowing you down—or you’re not sure how to scale your people operations—a PEO might be exactly what you need. It’s like outsourcing all the stressful, time-consuming parts of running a business so you can focus on the parts you actually enjoy.

In the next section, you’ll find a list of the top PEO providers I’ve researched and reviewed. Each one has its own strengths, pricing model, and ideal use case. Whether you’re looking for something affordable, all-in-one, or tailored to a certain industry, there’s likely a great match for your business.