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Did you know that small business owners can spend up to 24% of their time handling HR and administrative tasks? Imagine juggling payroll, staying on top of labor regulations, and providing competitive benefits — all while still trying to grow your business, despite limited time.
Sound familiar?
These HR challenges can become especially overwhelming for businesses that do not have an internal HR department, forcing business owners into a Catch-22 corner. With the realization that they need help managing their company’s HR complexities but can’t afford to hire a whole team or risk compliance missteps, how can they conquer this conundrum?
At Combined, A HUB International Company, we understand and have a solution!
In this article, we’ll explore the concept of a Professional Employer Organization (PEO) and break down how it can help businesses handle everything from payroll to benefits. By the end, you’ll know exactly what a PEO is, how it works, and whether it’s the right fit for your own organization’s growth and goals.
What is a PEO?
A PEO is a specialized HR partner that collaborates with businesses to provide end-to-end human resources support.
According to the National Association of Professional Employer Organizations (NAPEO), PEOs handle tasks such as payroll, employee benefits, workers’ compensation, and other critical HR functions. In other words, they become an extension of your team — offering the experience, resources, and strategic insights needed to streamline HR operations.
PEOs operate under a co-employment arrangement. Under this arrangement, both the PEO and your company share certain employer responsibilities. This means that when a business partners with a PEO, the PEO becomes the employer of record and assumes responsibility for administrative tasks like benefits, payroll, and compliance. Beyond handling payroll, benefits, and compliance, a PEO also provides access to Employer Practices Liability Insurance (EPLI) critical safeguard against employment-related lawsuits.
Notably, however, the influence of a PEO generally remains on the administrative side of employment; the client business still controls all major decisions related to day-to-day operations, hiring or terminating employees, and shaping the overall work environment and company culture.
Clarifying Employer Autonomy with PEO Support
Although the PEO’s name may appear on official documents — like payroll and benefits paperwork — as the business owner, your employees remain fully under your direction and leadership.
The PEO’s role is to handle administrative complexities, freeing you from tasks like tax filings and benefits negotiations, so you can focus on growth, strategy, and company culture.
In this way, partnering with a PEO simply adds specialized HR resources without diluting the authority you already hold over your workforce.
One of the most notable perks of working with a PEO is their pooled purchasing power. Because they bundle employees from many different client companies, PEOs can often secure better rates on group health insurance, retirement plans, and other employee benefits. This means that smaller and mid-sized organizations can access big-company perks — like more competitive benefits packages — while reducing the time, stress, and expense associated with securing those offerings on their own.
Key services provided by PEOs
Now that we’ve covered what a PEO is, let’s break down the specific services they provide to businesses.
Payroll administration:
A PEO typically takes over payroll processing, tax withholding, and direct deposit management. They ensure that paychecks go out on schedule and that the appropriate state and federal taxes are filed accurately. And in doing so, it relieves business owners of what is commonly considered one of the most time-consuming administrative tasks.
Benefits & insurance:
Of the advantages of working with a PEO, access to competitive benefit options is a major standout. Because PEOs pool employees from multiple clients, they often secure lower rates on health insurance, dental, vision, and other benefit plans. This can give smaller organizations an upper hand in talent recruitment and retention, especially in today’s competitive job market.
Regulatory compliance:
Keeping up with employment laws — like wage and hour regulations, Occupational Safety and Health Administration (OSHA) guidelines, or new state-specific mandates — can be tricky. A PEO’s team of experts stays on top of these changes, reducing the legal and financial risks partner businesses face.
HR management & support:
This encompasses everything from onboarding new hires to providing performance management tools, employee handbooks, and HR best practices. PEOs can also guide business owners on handling employee relations issues, ensuring adherence to legal guidelines when it comes to disciplinary actions or terminations.
Risk mitigation:
Many PEOs offer workers’ compensation coverage under their own master policy, simplifying the claims process if accidents occur. In addition, they help implement workplace safety measures that reduce the likelihood of on-the-job injuries.
Is it the right option for your business?
So you’re versed in what a PEO is and the services they can provide.
The next question is:
“Does your business really need one?”
This section will explore the pros, cons, costs, and decision factors you need to consider to decide if a PEO is the best HR option for your specific situation.
Pros of partnering with a PEO
Saves time and resources:
When you outsource HR functions to a PEO, you free up valuable hours that you and your team can redirect toward strategic planning, development, and other revenue-generating operations. According to a NAPEO study, businesses that use a PEO grow 7–9% faster than those that don’t, partly because they’re able to focus on core objectives rather than tedious administrative headaches.
Access to better benefits:
PEOs leverage their combined client workforces to negotiate competitive rates on health coverage, retirement plans, disability, and other benefits. And offering an attractive benefits package helps you stand out when hiring top talent and retaining your employees.
Reduced compliance risk:
From the Fair Labor Standards Act (FLSA) to the Affordable Care Act (ACA), employment laws are vast, confusing, and ever-changing. A PEOs expertise can help you avoid costly fines and lawsuits, giving you peace of mind that your company is staying on the right side of regulations.
Scalability:
If your business is growing or experiencing frequent changes in headcount, a PEO can help you handle payroll adjustments and update benefit enrollments seamlessly. This ensures that HR administration keeps pace with your expansion, rather than lagging behind and becoming a liability.
Cons of partnering with a PEO
Costs and fees:
PEOs typically charge one of two ways: Either a flat per-employee-per-month (PEPM) fee or a percentage of total payroll. While many businesses see net savings, it’s important for you to compare the costs of a PEO against hiring internal HR resources or using standalone HR software.
Less personalized control over certain processes:
Some business owners prefer an entirely in-house approach, feeling that it provides a more personal relationship with employees. While you maintain full control over operations, note that some HR functions — like the specific look of payroll checks or benefits portals — may be handled by a PEO in a more standardized manner.
Co-employment concerns:
Even though co-employment doesn’t diminish your managerial authority, the concept can feel unsettling for business owners who are used to having everything under one roof. It’s worth having a thorough conversation with potential PEO partners to understand exactly how company responsibilities will be divided.
Cost structures & budget considerations:
Again, PEOs generally charge either:
- A flat PEPM fee – A predictable monthly rate that scales with the number of employees.
- A percentage of total payroll – A fee that changes based on payroll costs, which can fluctuate if you have variable pay structures, seasonal employees, or are actively expanding.
When evaluating cost, also consider “hidden” factors like implementation costs, onboarding fees, cancellation policies, or any additional charges for specialized services like recruitment support. Some PEOs are very transparent, while others bundle fees in confusing ways, so it is critical to request a detailed breakdown of and understand all costs before signing.
What businesses should partner with a PEO?
PEOs are frequently associated with small businesses — particularly those with fewer than 100 employees — but organizations of all sizes can benefit. Mid-sized companies that lack a robust in-house HR team can also find value in the PEO model, especially if they’re scaling quickly. Large organizations sometimes turn to PEOs for specific needs, though many eventually build out their own HR infrastructure.
So, the answer to this question really is dependent on your company’s specific needs.
Evaluating your company’s needs:
To determine whether a PEO is the right option for your business, here are a few factors to consider as you compare HR solutions:
Company Size & Growth Trajectory
If your business is still small, having fewer than 20 employees, but is growing quickly, a PEO might provide the HR infrastructure you’ll soon require. If you’re already at 50+ employees and lacking a cohesive HR strategy, a PEO could immediately relieve your administrative burden.
Current HR Infrastructure
Do you have an HR expert on staff? Or is your office manager handling payroll and compliance? If you’re short on HR experience, a PEO can be a lifeline — especially in highly regulated industries like healthcare, construction, or finance.
Industry and Regulatory Environment
Businesses in states or industries with stringent employment laws often benefit most from a PEO. The deep familiarity with complex regulations that a PEO provides can prevent costly mistakes and reputation damage.
Take the next steps toward a foolproof HR strategy
By reading this article, you’ve learned how a PEO can lighten your HR workload, provide better benefits, and reduce compliance hardships — while still leaving daily operations in your hands. Yet, every business has its own complexities, so the information here should empower you to decide whether a PEO aligns with your goals or if a different HR strategy might better suit your needs.
Put this knowledge into action
Evaluate your needs: Start by listing your company’s biggest HR pain points — be it payroll, benefits administration, or regulatory compliance — and consider whether a PEO’s services and associated costs align with those needs.
. Compare your options: Explore PEO providers and other HR solutions to see which one best meets your budget, industry demands, and company culture.
Consult with an expert Don’t hesitate to speak with an experienced professional who can walk you through the co-employment model, fee structures, and potential ROI for your business.
Work with a trusted partner
At Combined, A HUB International Company, we’ve supported businesses for decades, helping them navigate complex HR challenges with confidence. If you’re ready to explore how a PEO might fit into your growth strategy — or if you simply want more clarity on your HR options — schedule a meeting with one of our HR experts.
This article is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.
