The Ultimate Guide to PEO Services in the US
Want to learn more about how PEO services can help your business? Here’s all you need
The Ultimate Guide to PEO Services in the US
Want to learn more about how PEO services can help your business? Here's all you need to know.
A Professional Employer Organization (PEO) is a great way to outsource critical HR tasks so you can focus on running your business.
But what is a PEO? How can they help your business? And what advantages are there to outsourcing HR duties?
Well, you’re in the right place to find out all of this and more with our ultimate guide to PEO services in the US.
What Is a PEO?
A Professional Employer Organization (PEO) is a company that partners with businesses to handle their essential HR functions. This is known as a co-employment relationship, where the PEO becomes the employer of record for tax and compliance purposes. The business maintains full control over daily operations.
By outsourcing these HR tasks to a third party, you can streamline your operations, access higher-quality employee benefits, and stay up to date with the ever-changing employment law landscape. This is particularly useful for smaller operations, as it allows you to shift time-consuming and tedious tasks to an outside source while maintaining control over your business and key decision-making.
How Do PEOs Work? (The Co-Employment Model Explained)
Co-employment is a contractual agreement between a client company and a services company to share legal employer responsibilities. Both parties agree to the terms and conditions, as well as the responsibilities, that the services company will undertake before anything is signed. This makes the details of each agreement unique.
Think about it this way.
You = client company
PEO provider = services company
You (the client company) want to focus on the day-to-day handling of your operations. Running meetings. Making business decisions. Telling Brenda to make you a coffee. You know, the important stuff.
But you don’t want to be responsible for boring admin duties or tedious and time-consuming HR tasks. So you bring on a PEO company to look after payroll, benefits, and other things behind the scenes.
This may sound similar to outsourced HR services (HRO), and you’d be right to think that. PEO is technically a type of HR outsourcing, but with one crucial difference: The co-employment model.
What Is the Co-Employment Model?
The co-employment model is when a PEO provider takes on some legal responsibility for your business’s employees and becomes listed as the employer of record. There is no transfer of ownership, and you remain in complete control of your business, staff, and decision-making. But the PEO company will take on legal and administrative obligations that would otherwise be yours.
For filings, payroll processing, benefits administration, and compliance with labor laws, the PEO provider is now technically the legal employer of your staff. This means that you are no longer 100% fully liable and responsible for the paperwork burden, as it’s now shared with the PEO.
Instead, you can focus on the fun parts of running a business, like strategy and decision-making, while they tackle the duller aspects.
How a PEO Works in 3 Simple Steps
Step 1
You sign a co-employment agreement
This contract is agreed with both the client company and the services company, which highlights exactly what responsibilities the PEO will take on. This could be payroll, benefits, or tax filings, among others. You still stay in control of your business operations and decision-making.
Step 2
The PEO becomes the employer of record
For legal and tax purposes, the PEO becomes the employer of record. Their name will now appear on payroll filings, benefit plans, and workers’ comp policies. They will also now take on part of the legal responsibility for your employees, sharing the risk with you.
Step 3
Focus on running your business
Now it’s time to do what you’re supposed to do: run your business. You’re still in charge of the team, building culture and making operational decisions, while the PEO handles all the time-consuming administration and HR tasks.
What Services Do PEOs Provide?
Payroll Administration
Did you know that on average, U.S. small businesses spend 260 hours each year doing payroll? Think of all the things you could be doing instead. Focusing on other areas of your business. Spending time with your loved one. Going for a drink with friends.
Literally anything other than doing payroll!
Not only is it incredibly tedious, but one simple mistake and your staff won’t be happy when they check their pay stubs. So why not just let a PEO take over?
They handle everything from wage calculation and paycheck distribution to processing deductions and setting up direct deposit. With their expertise, you reduce errors, improve accuracy, and free up valuable time. Typically, they’ll combine payroll with benefits and compliance systems so any changes to employee status, tax rates, or pay structures are automatically updated across all records.
Tax Management
The regulations surrounding the tax world are ever-changing. When you’re busy running a business, these changes can be easy to miss. One wrong step here and you’re facing some hefty fines.
A PEO offers employment tax filing services, ensuring your business meets all federal, state, local, and industry-specific requirements. They calculate withholdings, submit payments on time, and handle documentation such as W-2 preparation, 1099 filings, and 5500 filings for retirement plans.
Leaving this to the professionals who have experience navigating this constantly evolving minefield is going to reduce the risk of non-compliance and financial penalties. This is especially helpful if you operate across multiple locations where regulations can vary from state to state.
Human Resources Support
A PEO HR service acts as an extension of your team, delivering outsourced HR management that is tailored to fit your specific needs and culture. From recruitment services and candidate screening to employee onboarding and offboarding, with PEO, your team is supported from the get-go. They can also develop workplace policies and mediate objectively to resolve workplace conflict.
This range and quality of HR are impossible for smaller businesses to benefit from without paying for a full-time, in-house team.
Employee Benefits Administration
A comprehensive benefits package can make all the difference when it comes to retaining staff and attracting new members. By partnering with a PEO, you can typically access higher-quality deals at lower prices. This is because PEOs will often manage multiple businesses and have established relationships with benefits providers, which allows them to pass savings on to you.
Some benefits you and your team could access include:
- Health
- Dental
- Vision
- Life
- Disability
- 401(k)
Workers’ Compensation
A PEO provides workers’ compensation coverage as part of its service package, ensuring you meet state-specific requirements and protect your employees in case of workplace injuries. They manage claims, coordinate with insurance carriers, and maintain compliance with all regulations governing workers’ comp insurance. This expertise helps protect your business from fines due to mishandled claims.
It also means that should a staff member be injured, they receive the care and benefits they need without coming out of their own pocket. You can even access these rates if you operate in higher-risk industries without having to pay a premium.
Compliance & Legal Support
Labor laws, tax codes, and workplace regulations are forever changing, and ignorance is never an excuse for failing to meet them. When a PEO is in control, there’s nothing to worry about. With their HR compliance support, you have help in navigating wage and hour laws, anti-discrimination regulations, and health and safety standards.
They provide Employment Practices Liability Insurance, which protects you against any claims of unlawful termination or discrimination. Being on the front foot keeps you ready for any legal risk while giving you the peace of mind knowing that you’re in line with all current laws.
Risk & Safety Management
Keeping your staff and customers safe is a key part of running a business. PEOs help mitigate workplace hazards by providing OSHA compliance assistance, developing safety policies, and tracking and properly documenting incidents. They can also carry out safety inspections and training workshops, giving your staff hands-on experience of how to correctly respond to incidents.
By addressing these issues before they occur and putting in place a comprehensive process, you keep your workforce safe, avoid fines and penalties, and reduce the risk of workers’ comp payouts.
Training & Performance Management
Investing in your team is one of the best investments you can make as a business owner. It helps to develop your team’s skillsets, which can pay dividends and also help boost retention. PEOs deliver employee training programs designed specifically for your team, including industry-specific courses and qualifications, skill development, and performance tracking and reviews.
This structured approach to workforce development gives your staff a clear understanding of their expectations while providing actionable insights into team performance.
What Are the Benefits of Using a PEO?
Reduced HR Costs & Overheads
One of the most attractive benefits of partnering with a PEO is the significantly lower operational costs. Having someone in-house requires time and money being pumped into recruitment, training, salary, benefits, and other overheads. By outsourcing, you can benefit from the full HR services without your budget taking a significant hit.
You’ll also only pay for the services you require. Most providers will allow you to cherry-pick them as opposed to a one-size-fits-all package. This means you’re not stuck forking out for a bunch of services that you don’t need.
Simplified Payroll & Tax Management
Speaking of payroll, it’s one of the most time-consuming and compliance-sensitive aspects of running a business. Letting a PEO take over salary payments, tax withholding, contributions, and remittance to the appropriate authorities is going to save you hours each week.
Not only that, but there’s less chance of you making a mistake or being non-compliant. Couple this peace of mind with the fact that paperwork, regulations, and deadlines are all things of the past; what’s not to like?
Better Employee Benefits at Lower Costs
Comprehensive benefits packages are great tools for retaining top talent and attracting new talent in today’s competitive job market. If you’re a smaller business, it can be difficult to access a higher-quality package for your employees. Unless you’re partnered with a PEO, that is.
Typically, they’ll have established relationships with benefits providers and, as the employer of record across multiple client companies, have stronger negotiating power. This means your employees can access benefits, including healthcare, retirement plans, and other benefits, while saving you up to 20%. Everyone’s a winner.
Improved Compliance & Risk Mitigation
Navigating employment laws, regulations, and cultural requirements is challenging at the best of times. If you operate across multiple states or countries, then these become even more complex. Luckily, PEOs are full of professionals with experience operating across state lines and internationally, offering guidance on contracts, salary benchmarks, paid leave rules, and reducing permanent establishment risk.
Their expertise keeps your business in line with different regulations so you can remain compliant and avoid fines, penalties, or disputes. By acting as your employer of record, they also take on much of the legal responsibility and, in turn, risk.
Higher Employee Retention
Replacing an employee can cost you anywhere between 40% and 200% of their annual wage, depending on their position. Studies also show turnover among businesses using PEOs is 12% lower than non-PEO companies (50.4% vs. 57.6%), even when adjusting for size and growth rate.
Whether it’s better benefits, streamlined HR processes, or a focus on employee satisfaction, a PEO can help you create a company culture that people love. This gives you a more loyal and engaged workforce that is ready to run through walls for you and is less likely to be tempted elsewhere.
Time Savings & Operational Efficiency
Yes, it may be a cliché, but time really is money when it comes to your business, and a PEO can help you save both. By taking away HR and admin tasks from your team, they can focus on their actual roles.
Recruitment, onboarding, payroll, and compliance management are streamlined into a centralized system, reducing the risk of error and duplication and improving overall efficiency.
Expansion Support
If you’re expanding into new territories, both at home and overseas, then a PEO can help. You’ll need to familiarize yourself with new laws, regulations, and cultural differences. A global PEO will already be familiar with these and, because they’re your employer of record, will take on the legal responsibility and administrative aspects of hiring within new locations without the need for a physical presence.
This approach allows you to test new markets at low risk, scale operations quickly, and adapt easily if a market doesn’t perform as expected. It’s a flexible and cost-effective way to grow internationally while avoiding long-term commitments.
Flexibility & Scalability
A PEO gives your business the flexibility to adjust its workforce in response to market conditions. Whether you need to scale up for a growth surge or downsize during a period of contraction, the PEO can manage these changes efficiently and legally.
Services are also customizable to your business’s needs, meaning you can engage a PEO for only the functions you require. This adaptability ensures you’re always equipped with the right level of HR support without overcommitting resources.
How to Choose the Right PEO Provider
Identify the Services You Need
What do you want your PEO to take off your hands? Do you want to just outsource one task, like payroll? Or go for the whole shebang?
One of the benefits of PEO is that you don’t pay for unnecessary services. If they only offer fixed packages, and the majority of their offerings are things you don’t need, then signing up is just burning money. Look for a provider that offers a la carte options so you can pick and pay for the ones that you actually need.
A good way to go about this is by identifying the services you need before you begin your search. That way, you can quickly filter out providers that don’t meet your needs and will have a deeper understanding of exactly how they can help you.
Review Certifications and Accreditations
Certifications and accreditations are one of the quickest and easiest ways to judge the quality of a PEO provider. If they hold credentials from recognized institutions, then this is a positive sign. Qualifications to look out for include:
- CPEO (Certified Professional Employer Organization): IRS-issued, ensuring financial stability and tax compliance.
- CPP (Certified Payroll Professional): APA-issued, confirming advanced payroll knowledge.
- CEBS (Certified Employee Benefit Specialist): IFEBP-issued, reflecting strong benefits management expertise.
- ESAC Accreditation: Recognizes financial stability and ethical practices.
- SHRM-CP & SHRM-SCP: Demonstrates a deep understanding of HR laws and regulations.
Confirm Their Expertise
For most industries, a more generalist PEO provider will be absolutely fine. However, if you’re in a high-risk sector or one with specific laws and regulatory bodies, then choosing a partner with experience within your niche can make all the difference.
These can include construction, manufacturing, trucking, healthcare, and real estate. This expertise will help you better understand the compliance risks, hiring norms, and other potential pitfalls for your specific industry.
If you’re looking to expand into new markets or geographic territories, have they had any experience helping other businesses do this successfully? Always ask for case studies for proof of their claims.
Factor in Cost
PEO pricing models vary, so compare total costs against the value of services offered. Some charge a flat fee per employee, while others take a percentage of payroll. Remember to weigh the potential savings from reduced HR staff, improved compliance, and better benefits rates.
Also factor in the value compared to the cost. One provider may be more expensive than the other, but is there a reason for this? Maybe they offer a more comprehensive service, with more responsive support and more qualified staff.
Also, and this really should go without saying: make sure you can actually afford it.
Always Check Reviews & References
Don’t just go by what a smooth-talking salesperson tells you. Before signing anything, check out sites like Trustpilot and their Google Reviews to see what real-world customers are saying about them. Look for things like support, how easy they are to communicate with, and if they actually deliver on their promises.
One or two poor reviews are to be expected. But if you see the same thing, both good and bad, popping up over and over again, then this is likely a true reflection of their services.
How to Get a PEO for Your Business
Now that you’re aware of how a PEO can help keep your business efficient and compliant, there’s just one thing left to do: find one for your business!
Here at Commercial Experts, we’ve already helped countless US businesses like yours find the best PEO partner for them, and we’d love for you to be next!
All you have to do is tap the button below and answer a few quick questions about your business. Then, based on your responses, get a range of free PEO services quotes tailored to meet your specific needs.
Don’t like what you see? No problem: this service is 100% free, no strings attached, so walk away with zero obligation.
FAQs
What is a PEO, and how can it help my business?
A PEO (Professional Employer Organization) handles HR, payroll, compliance, and employee benefits through a co-employment model. This allows you to focus on daily operations while they manage time-consuming administrative tasks, improve efficiency, and reduce the risk of costly compliance mistakes.
How does the co-employment model work?
In co-employment, you retain control over business operations while the PEO becomes the employer of record for tax and legal purposes. They handle payroll, benefits, and compliance, sharing liability and ensuring employees are managed according to current labor laws and regulations.
What is an employer of record?
An employer of record (EOR) is a third-party organization that legally employs your workforce on your behalf. While you maintain control over daily operations, the EOR manages all HR functions, including onboarding, payroll, benefits, compliance, employee support, and offboarding.
How can a PEO improve compliance and reduce risk?
PEOs monitor ever-changing labor laws and industry regulations, ensuring your business stays compliant. They manage documentation, workplace safety programs, and benefits compliance, significantly reducing the risk of fines, lawsuits, or other penalties that can arise from non-compliance or administrative errors.
How do I get started with finding a PEO?
Just tap the button below and answer a few simple questions about your business. Then you’ll receive a range of tailored PEO quotes from some of the U.S.’s leading providers. Don’t like what you see? No worries, this is a totally free service with no obligation to commit, so just walk away without spending a penny!
