By What does a PEO give you?
A PEO covers six things. Each one removes a piece of administrative work or complexity.
| What the PEO provides | What it means for your company |
|---|---|
| Payroll, including multi-state payroll taxes | Useful when you hire in several states and want to be told what each one requires. |
| Benefits that feel like a larger company's | Many founders and early hires come from big companies and expect that level of coverage. |
| Workers' compensation | For blue- and gray-collar businesses, this is sometimes the main reason to look at a PEO at all. |
| Year-round administration | COBRA, payroll taxes, benefits changes, 401(k) changes and the small tasks that have to happen during the year. |
| One relationship | One invoice, one administrative contact and one platform. Good for your admin team and for employees. |
| Someone to talk issues through with | Most PEOs still offer this, though in Steve's experience it is becoming less common. |
Which companies is a PEO best suited to?
The less complexity a company has, the more naturally a PEO fits. Software companies, consulting firms and professional services businesses tend to pair well with a PEO. They usually have salaried employees, maybe commissions calculated in another system, and a payroll that mostly just needs to run.
What does a PEO not do?
A PEO reacts to issues rather than anticipating them. Bring it a problem and it can help you solve it, but it is generally not inside your business spotting problems for you. Specifically, a PEO:
- Doesn't know which employee is causing problems.
- Doesn't know what happened in the interview you just ran.
- Doesn't know you're about to make a compensation decision that could cause trouble later.
Who owns HR when you use a PEO?
The employer does. The PEO provides the infrastructure, and HR provides the ownership. Here, HR means the employer: even without an HR person, you are still HR.
Example: you have 70 employees and a candidate you really want. To close the deal, you consider offering something no one else gets, such as 100% coverage for their dependents or a special compensation arrangement. The PEO can process that decision. It can't tell you whether it's a good one. Someone in your business has to ask what precedent it sets, what it means for everyone else, and how it fits your compensation strategy going forward. That is ownership, and no infrastructure provides it.
Adapted from Steve's video PEO vs In-House HR, chapters 2:06-4:19.
Common questions
Does a PEO replace an HR person?
No. A PEO handles HR administration and infrastructure. Decisions about people, pay and precedent still sit with the employer.
What kinds of companies does a PEO suit best?
Companies with simpler models: software, consulting and professional services firms with salaried employees and straightforward payroll.
Will a PEO catch HR problems before they happen?
Generally not. A PEO responds to issues you bring to it. It isn't inside your business identifying them.
Who owns HR if we use a PEO?
You do. The PEO runs the system; the employer owns the outcome.
What services does a PEO provide?
Payroll including multi-state payroll taxes, benefits, workers' compensation, HR administration, I-9 compliance and HR technology, delivered through one invoice and one platform.
Steve Taylor, founder of Thinq HR & Insurance Services, has 15 years in employee benefits, HR, payroll, PEOs and insurance, including time inside Paychex, ADP and TriNet.