Do you really need a PEO? Here’s how to tell

A PEO (professional employer organization) essentially takes on payroll compliance liability as a service. In practice, it's a payroll provider that takes state employer registrations and a lot of other compliance decisions off your hands. PEOs can also lower your insurance costs (but only in certain situations, and the savings may be cancelled out by higher costs elsewhere).

I see variations on this request for “compliance support” a lot.

“Our payroll system struggles with having employees in multiple states. We’re a remote team. We need an HRIS that actually works for us.”

When I dig in, they’re usually talking about state tax setup, benefits administration, and keeping multi-state regulations straight day-to-day.

That’s what a PEO does.

The PEO achieves its compliance support and benefits discounts by legally hiring your employees and leasing them back to you.

Think of a PEO as payroll that bosses you around sometimes.

For your own protection.

The PEO keeps its clients compliant by making some choices for them. Limiting your options can give you a more streamlined experience as a business owner, but not always. Having fewer choices can be inconvenient as often as it saves time.

PEOs also give smaller companies access to more affordable health insurance plans.

It's a pretty nifty model: Because the team is technically employed by the PEO (at least on paper), the PEO can pool its tens of thousands of client-employees for more bargaining power with insurance companies. However, as your team grows, the increased costs of the PEO itself quickly cancel out the cost-savings on their health insurance.

A PEO is an insurance broker, a guardrail, and a payroll provider. But it’s not a brain.

PEOs don't save as much work as many business owners expect, and still require special knowledge to operate. A People Operations expert can give you more time back, fulfill other non-payroll duties, and may even cost less than a PEO over time.

If the only reason you're hiring a PEO is to take HR administration tasks off your plate, you might be better off with a human.

Some people need a PEO. Some need a person. Most don’t know which they are.

Here’s how you know if you’re looking for a PEO or something else:

Do you already have someone to manage People Ops?

The biggest misconception of people who have never used a PEO before is that it will make HR and payroll magically effortless. These people are usually disappointed.

With providers like JustWorks and Rippling that offer both PEO and non-PEO options, the platform is nearly identical. Except that the PEO version has fewer settings.

If self-managed payroll is a stick shift, a PEO is automatic transmission. Either way, you still need to know the rules of the road to drive safely. Whether you’re using a PEO or not, someone still has to know how to use it.

You might be looking for a PEO if...	You might be looking for a person if...
...someone on your team is already managing payroll and HR operations, and all you want is to reduce the time or technical skill required.	...you keep getting stuck and no one on your team knows how to get unstuck nor do they have time to figure it out.

Are you trying to fix a health insurance problem?

Think a PEO will solve your insurance costs? They might, but only if you don't look at the full picture.

Insurance plan rates for any group with fewer than 50 employees are set by the state. Meaning that small group plan options and rates are exactly the same, no matter who you buy from. No negotiation, no leverage, take it or leave it.

A PEO is a "whale" to the insurance companies. With their enormous pool of employees, the PEO can negotiate much more affordable coverage than is available through the state Exchange. From what I've seen, PEO rates are generally about 15-20% cheaper than comparable Marketplace plans.

But if your company has already exceeded the 50-employee threshold, you might already be able to negotiate rates competitive with what the PEO is offering. While the actual price depends on the provider and features you choose, conventional wisdom says that a PEO costs 1-3% of total payroll. Whatever you save on insurance might be cancelled out by the extra cost of the PEO in the first place.

If getting a $150 per-employee-per-month (PEPM) discount on insurance costs you an extra $75 PEPM in subscription fees, the insurance savings start to look less attractive.

You might be looking for a PEO if...	You might be looking for a person if...
...health insurance isn't your only reason for considering a PEO. For example, if the time savings and insurance savings of a PEO would both make a difference to your organization.	...you're only looking for cheaper health insurance and you expect to have more than 50 employees in the next year or so.
...you want to offer a consistent experience in multiple coverage areas (especially New York or Hawaii) and one insurance plan won’t meet everyone’s needs equally.	...your broker just sucks and you're looking for a solution that doesn't mess up all the time. (If this is you, contact us. We can help.)

Are you looking to delegate your HR ops?

No shade if payroll compliance isn't your specialty. If it's cheaper and easier to delegate than to learn, that's a smart business decision. But you do need to make sure that who- or whatever you're delegating to is the right fit for the problem you're trying to solve.

A PEO won’t save you from doing the work. It just gives you better guardrails. There will still be situations that the PEO can't fix for you. You or someone at your company will still need to keep an eye on things, and fix it if it breaks. If you don’t want to be that person, hire someone.

You can outsource execution. Not understanding.

But if you like being involved in making decisions for the company, advocating for your employees when something goes wrong, and setting your operational workflows, a PEO might drive you nuts. If you just need a little extra support on specialized compliance knowledge there might be a better fit for what you need.

You might be looking for a PEO if...	You might be looking for a person if...
...you’re okay with getting in the weeds (and on the phone) when something breaks on your company’s side of the coemployment fence. You just want a vendor to set up the rules that keep you in-bounds with the law.	...you're looking for someone to get on the phone, understand how different settings show up day-to-day, or have awkward conversations with your team.

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🪄✨ Payroll compliance isn’t magic. A PEO can't cast a spell that fixes all of your problems. It’s just a fancier wand.

I haven't worked with all PEO providers, but I've worked with some of them. Here's my experience with each:

Provider	Rating	What they do well	What they do poorly	Would I recommend them?
Rippling	🌟🌟🌟🌟🌟	Versatile and well built	Difficult for HR novices and non-technical users	Yes! Rippling is my favorite platform to work in.
JustWorks	🌟🌟🌟🌟☆	Easy to use, cost-effective, and nonintrusive	Limited features and sometimes buggy	Sometimes. JustWorks is my go-to for smaller teams with less complex needs.
Insperity	🌟🌟🌟🌟☆	Support and expertise	Human processes are slower and tech platform isn't as robust	Sometimes. For teams that will stay small and need a PEO that's almost like a lightweight HR department.
ADP	⭐️☆☆☆☆	Can handle complex orgs and needs	Everything else	ADP is the only payroll provider I won't work with (unless I'm helping a client leave ADP)
Deel	🌟🌟☆☆☆	Modern UI and add-on features	Built in a way that doesn't really make sense for real-life work. Support is a black hole.	No. Deel looks pretty and has a lot of features in theory, but nothing really works the way it should. The whole product feels a little bit like trying to read a book in a dream.
TriNet	🌟🌟🌟☆☆	Solid. Proven.	Indifference toward the user	(Caveat: I have not used TriNet, only helped users leave) Feedback is consistent that TriNet works, but is unsympathetic to the life-altering impact when their services fall short.

PEOs are a great tool to simplify multi-state compliance and reduce insurance costs, but they can't reach into your company and make up for operational weakness.

A PEO isn't your HR team, it's your infrastructure.

If you're considering a PEO, need an expert to help manage what the PEO can't, or don't know which one applies to you, we can help. In 30 minutes, we can diagnose what's holding you back and make a recommendation for where to go from here.

Let's Talk

We can help you migrate onto (or off of) a PEO or support your HR operations without a PEO.

But if you don't need it, we won't try to sell it to you. We can also get you a discount with many of our preferred providers.