A Beginner’s Guide to PEOs: Everything You Need to Know

Professional Employer Organizations (PEO in US) have become increasingly popular among businesses in the US as they offer an effective way to manage payroll and human resources functions. In this beginner’s guide, we will explore everything you need to know about PEOs, including their benefits, services, and how they work.

As a business owner, managing human resources can be time-consuming and complex, particularly for small and medium-sized businesses (SMBs). In recent years, many companies have turned to Professional Employer Organizations (PEOs) to help streamline HR functions and improve compliance. A PEO is a company that provides HR services such as payroll, benefits administration, and regulatory compliance to other businesses.

Overall, PEOs can be a valuable resource for SMBs looking to streamline HR functions, improve compliance, and save time and resources. With their expertise and resources, PEOs can help businesses focus on what they do best – growing their business.

What is a PEO?

A Professional Employer Organization (PEO) is a third-party organization that provides comprehensive HR services to small and medium-sized businesses. PEOs assume responsibility for human resources functions, such as payroll processing, benefits administration, workers’ compensation, and compliance with state and federal employment laws. This allows businesses to focus on their core competencies while leaving the administrative tasks to the PEO.

One of the primary benefits of using a PEO is that it can help SMBs save time and resources. By outsourcing HR tasks to a PEO, business owners can focus on their core activities and reduce administrative burdens. Additionally, PEOs can help businesses save money by pooling resources, such as benefits and insurance, for their clients.

Another benefit of using a PEO is that it can improve compliance with labor laws and regulations. PEOs typically have a team of experts who are up-to-date on current laws and regulations, and can ensure that their clients are in compliance. This can help reduce the risk of legal disputes and penalties, which can be costly for businesses.

PEOs can also provide access to a wider range of benefits and services for employees, such as health insurance, retirement plans, and employee assistance programs. These benefits can help attract and retain top talent, which is crucial for the success of any business.

How do PEOs work?

PEOs work by entering into a co-employment relationship with the businesses they serve. In this relationship, the PEO becomes the employer of record for the employees, while the business retains control over the day-to-day operations of the business. The PEO assumes responsibility for payroll processing, benefits administration, and other HR functions, while the business maintains control over its core operations.

What are the benefits of using a PEO?

Using a PEO offers several benefits to businesses, including:

Cost savings: PEOs can help businesses save money by pooling their resources with other businesses to negotiate lower rates for benefits such as health insurance, workers’ compensation, and retirement plans.

Expertise: PEOs have a team of experts in HR and payroll processing, ensuring that businesses remain compliant with state and federal employment laws.

Risk mitigation: PEOs assume legal liability for HR-related issues, reducing the risk for businesses.

Employee retention: PEOs offer comprehensive benefits and HR services, which can help businesses attract and retain employees.

What services do PEOs offer?

PEOs offer a range of services, including:

Payroll processing: PEOs handle all aspects of payroll processing, including calculating and distributing employee paychecks, withholding payroll taxes, and reporting tax information to the appropriate government agencies.

Workers’ compensation: PEOs assume responsibility for workers’ compensation insurance, ensuring that businesses remain compliant with state and federal laws.

Compliance: PEOs keep businesses up-to-date with state and federal employment laws, including changes to minimum wage requirements, overtime rules, and anti-discrimination laws.

HR administration: PEOs offer HR services, such as recruitment, employee training, and performance management.

What are the costs of using a PEO?

The costs of using a PEO vary depending on the size of the business and the services required. Generally, PEOs charge a fee based on a percentage of the total payroll. Businesses should carefully review the fees and services offered by a PEO before signing a contract.

How to choose the right PEO for your business?

Choosing the right PEO for your business is a critical decision. Here are some factors to consider when selecting a PEO:

Experience: Look for a PEO with experience in your industry and the size of your business.

Services offered: Ensure that the PEO offers the services you require, such as payroll processing, benefits administration, and HR services.

Cost: Compare the fees and services offered by different PEOs to ensure you are getting the best value for your money.

Customer service: Look for a PEO that offers excellent customer service and is responsive to your needs.


PEOs offer a valuable service to businesses by assuming responsibility for HR functions, including Payroll in US, benefits administration, and compliance with state and federal employment laws.