The PEO issues the paycheck, but you pay the wages, taxes, and employer portion of benefits. Since the PEO is the employer on paper, they handle registering for state agencies and tracking compliance laws. And because PEOs can pool all of their client-employees, you get access the more affordable and flexible large-group benefits.

Many companies with fewer than 200 people will literally sign away legal control of their employees and pay multiple times more for payroll services. Just so they don’t have to think about state tax settings.

Here are five examples of mundane breakdowns that I’ve seen lead to payroll errors:

A PEO is an insurance broker, a guardrail, and a payroll provider. But it’s not a brain. Some people need a PEO. Some need a person. Most don’t know which they are.

Most teams frame it like a software switch. In reality, you’re rebuilding your company’s approach to employee data, payroll, benefits, and compliance from scratch.