What is a PEO and Why Does Your Business Need One?

What is a PEO and Why Does Your Business Need One?

To run a successful business, you have to think strategically when it comes to your spending. As your business grows, you’ll demand a more robust HR team that can meet the needs of your employees. As far as employment issues, providing your employees with access to business benefits that improve retention, and employee onboarding, your HR department is an absolute necessity. Unfortunately for some businesses, they don’t have the necessary funds to have a complete HR department. Cue the professional employer organization (PEO).

What is a PEO?

A PEO is an organization separate from your own that enters a co-employment relationship with your business. It takes on many of the responsibilities of your employer-related HR department, such as payroll and benefits, so that you can free up your employees’ time for more productive work.

Why Does Your Business Need a PEO?

A PEO saves you time as a business owner by handling most of your employer responsibilities to your employees. From helping your employees enroll in health insurance to handling payroll, your PEO can help you improve the overall structure and productivity level of your business.

PEOs and Business Savings

PEOs can help you save money by avoiding hiring the wrong candidates for important roles. They can also save you money by freeing up your office space for more critical tasks and job roles when you reduce the size of your HR department. Calculate your PEO cost savings to find just how much PEOs can save your business.


Working with a PEO can help you greatly reduce the cost of your payroll processing and similar accounting. These co-employment relationships automate the entire payroll process and take care of withholdings, W-2s, and garnishments.

PEOs typically have a straightforward fee or separate fees for various payroll services.

Employee Benefits

There are federal laws that cover employee benefits, from health insurance to paid time off (PTO). Your state might also have regulations for you to follow when it comes to employee benefits. Not giving your employees the proper number of days off can result in more than a disgruntled employee; you could be faced with a lawsuit.

When it comes to benefits, it’s essential that you follow the laws and provide your employees with information about their benefits. A PEO can help you understand what employees are legally entitled to, and help your employees learn about their benefits while giving them somewhere to go with any questions.

Retirement Plans

PEOs provide access to retirement plans like 401(k)s that can help improve employee retention. A PEO that sponsors a 401(k) plan allows your employees to defer compensation for retirement with employer matching or other types of contributions.

The PEO will manage the administrative responsibilities and regulatory requirements, including compliance, distribution, and processing of the 401(k) plans. They will also provide educational materials to help your employees understand their retirement options.

HR Compliance

Employment law is something that many business owners don’t have the time to learn. However, not keeping up with HR laws, regulations, and more can cost your business. Both state and federal agencies can fine your business if you don’t comply with the law.

A PEO can guide you to help you avoid costly HR legal mistakes. While you may have an in-house HR team or individual, a PEO can give you significant insight into regulatory updates so that you can make appropriate adjustments. Remember, though, a PEO is not a substitute for a good lawyer. It’s always important that you have all of your bases covered when it comes to HR compliance to ensure that you’re following the law.

Workers’ Compensation

Workers’ compensation is costly and time-consuming because of insurance premiums and claims management. Because a PEO is a co-employer, it can provide workers’ compensation coverage to employees through its own insurance program while handling the compliance, audits, paperwork, and more associated with these programs.

A PEO with workers’ compensation specialists can help you mitigate risk while providing your employees with the answers they need.


Lawsuits can be damaging both financially and publicly. A single lawsuit can be devastating to any business, so it’s vital that you keep your employer liabilities in check. A PEO will share liability associated with certain claims, like wrongful termination.

PEOs also have equal employment opportunity specialists that can help you navigate the intricate discrimination laws so that you can mitigate a potentially costly settlement.

With extensive knowledge of HR, a PEO can ensure all agreements and actions in that area of your business are in compliance with the law.



Depending on the type of business, you may have someone who works internally on recruiting. Finding a qualified candidate is a necessity to keep turnover low, so it’s important to spend time reviewing qualified candidates and running employment background checks.

Consider all of the things that go into recruiting, from placing ads for job openings to interviewing and more. Recruiting takes time and energy, and hiring the wrong person can be costly. Luckily, a PEO can offer recruitment assistance to help you get access to experienced recruiters that understand your company’s employment needs.

With a large network, a PEO can help you find qualified candidates in less time and at a lower cost. You can ask your PEO to simply recruit or take on the entire hiring process, from posting job openings to onboarding new employees.

Tracking Employee Performance

Employee performance can help business owners get a better understanding of areas that need improvement and identify individuals who might be costing the business money instead of helping it achieve success. Talking about employee performance can be difficult without the right managerial experience because it’s challenging to give feedback that doesn’t insult your employees. It can also be difficult to analyze how your employees are performing their job duties.

PEOs can help you track your employee performance with software and forms for you and your employees to fill out on a set schedule. With performance reporting, you can ensure that your teams are on the same page about goals and areas for improvement.

Easy HR Solutions

Working with PEOs can save your business money while providing you with peace of mind. Additionally, working with a PEO can relieve you and your employees of employment-related responsibilities and risks, while giving your employees a comprehensive benefits package and helping you hire and retain the best workers for your company.

Matt Casadona

Matt CasadonaMatt Casadona has a Bachelor of Science in Business Administration, with a concentration in Marketing and a minor in Psychology. He is currently a contributing editor for 365 Business Tips. Matt is passionate about marketing and business strategy and enjoys the San Diego life, traveling and music.


Shankar is a tech blogger who occasionally enjoys penning historical fiction. With over a thousand articles written on tech, business, finance, marketing, mobile, social media, cloud storage, software, and general topics, he has been creating material for the past eight years.

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