Why Use a PEO Instead of a HR Person 

April 14, 2025

For many small and medium-sized businesses today, navigating the complexities of the ever-evolving human resource (HR) landscape may feel like a daunting task. Business owners not only have to ensure complete compliance with employment laws but also be on top of several administrative duties such as payroll management and benefit packages. 

Likewise, the majority of up-and-coming small businesses are also striving to maximize their profits while maintaining a competitive edge in the marketplace. This poses a challenge if a huge chunk of the budget is dedicated to ensuring compliance with everyday HR activities. 

While a traditional, in-house HR approach may seem desirable, it is not the only option available for businesses today. The rise of Professional Employer Organizations (PEOs) has drastically shifted the overall HR outlook. It is no longer necessary for businesses to employ an HR person to stay on top of tax laws, employment processes, and ultimately, overall operational efficiency. 

What is a PEO and how does it work? 

A PEO operates under a co-employment business model. This means it partners with a variety of businesses to specifically manage a range of HR functions. A PEO acts as the employer of record. 

As a co-employer, a PEO shares employer liability by assuming the HR-related business tasks. However, a PEO does not retain control or ownership of the business. All it does is provide assistance and guidance for business owners within the realm of HR. 

Core HR functions typically handled by PEOs include – 

Depending on the kind of contract you have set in place with your PEO provider, some or all of your HR functions can be outsourced. Additionally, by undertaking an administrative services outsourcing agreement (ASO), you determine the level of control your PEO has, whether you would like them to act as a co-employer or to just outsource some HR duties. 

What’s the difference between a PEO and an in-house HR person? 

Curious about how a PEO differs from your traditional in-house HR person? Here are a few key points – 

  • An in-house HR person may have decades worth of experience but it is often limited to a single field or specialty. Alternatively, a PEO tends to have cross-industry experience which means they are often skilled to solve a range of issues. 
  • PEOs come equipped with benefit packages for employees that internal HR teams may not be able to offer. By partnering with multiple organizations, businesses can gain access to benefit packages to help attract and retain top talent. 
  • PEOs undergo continuous training and development. This means that PEO specialists are known to stay on top of new developments within both the technological and legal landscape. 
  • PEOs never go on vacation, meaning your PEO is always there to address an HR concern.
  • Compared to an in-house HR person, PEOs share employer liability in a co-employment relationship, therefore offering a higher level of protection. 

Does a PEO actually replace your HR person? 

Well, the short answer is yes. The time and effort dedicated towards tasks like payroll, compliance, and benefits can be significant, especially for small teams. Thus, a PEO offers peace of mind for businesses worried about HR-related matters. While your company will remain at the forefront of daily tasks and employee management, a PEO will ensure that all things relevant to HR are efficiently dealt with behind the scenes. 

Assuming that an in-house HR department isn’t currently available or even feasible, you should start by determining the current state of your company. Figure out which HR functions are being carried out by whom and what exactly is lacking. Once you’ve assessed this, you’ll know if partnering with a PEO is a good step forward. If you need to establish an HR department within your company, then a PEO is the right move for your business. 

Research from the National Association of Employer Organizations (NAPEO) in 2019 revealed that–

  • Among PEO clients, there is notably a lower employee turnover rate. 
  • Rate of employee growth and overall business revenue is higher amongst PEO clients. 
  • The rate of PEO clients expressing major concerns about hiring and retaining employees is significantly lower than traditional mechanisms. 
  • Partnering with a PEO often improves the variety of benefits offered by the client. 

5 key advantages of opting to work with a PEO

Still unsure whether working with a PEO is right for your business? Here are five key reasons why you should consider working with one. 

Overall Cost Reduction 

First, partnering with a PEO is a much more cost-effective solution as opposed to hiring an entire HR team. The costs of a PEO are clearly laid out prior to signing your contract. This means, you’ll know exactly what to expect before embarking on a professional relationship with your PEO. 

When you calculate the real cost of HR, it starts to add up. Aspects such as payroll providers, technology, and compensation costs are often overlooked expenses. Hence, working with a PEO at a fixed rate can help you effectively manage your overall business expenses. 

For instance, a study conducted by The Society of Human Resource Management (SHRM) revealed that in-house payroll processing typically costs $16 per check for every 1000 employees, but by partnering with a PEO, it is estimated to only cost $10 per check, resulting in about 35% in savings. 

Moreover, a study by the National Association of Employer Organizations (NAPEO) found that the average annual return on investment (ROI) of using a PEO is 27.2%. Instead of hiring a new team member to handle the nitty-gritty details of HR tasks and compliance, you can choose to reinvest the cost savings gained from working with a PEO within your organization to propel its growth. 

Ensuring Legal Compliance 

By opting to work with a PEO, you no longer have to meticulously keep track of employment law changes. Your PEO will do that for you. 

A core function of a PEO is to stay on top of local, state, and federal labor laws. WIth regulations growing increasingly complex year by year, a single mistake can negatively impact your business performance and reputation. PEOs are regulatory experts and will monitor all necessary changes in both local and federal labor laws, providing you with the guidance needed to stay compliant. 

Administering Employee Benefits 

The majority of small to mid-sized businesses lack the capability to offer benefits to their employees. Besides a competitive salary, a strong benefits package is desired by most employees. Since PEOs combine the employees of several businesses it represents, it is able to negotiate cheaper coverage for a range of benefits while also ensuring they are compliant and sustainable for your business. 

Gain access to Fortune 500-level benefits at an affordable cost to help you attract and retain top talent. These benefits tend to include medical coverage, life and disability coverage, retirement packages, childcare assistance, and more. 

Extensive Service Offerings 

An HR specialist may have some key areas of expertise, but at the same time, they’re unable to do or know it all. Some may be skilled in benefit administration while others may be better off at tax filing, making it likely that you’ll outsource some of your core functions. 

Working with a PEO saves the time, effort, and money needed to hire several skilled employees. In partnering with a PEO, internal employees are freed from a range of HR tasks, enabling them to focus on more pressing tasks. Functions such as payroll processing, taxes, recruiting, and other specialized tasks are often integrated, meaning a company only needs to hire a single provider. 

Employee Training and Development

PEOs collaborate with businesses to design and implement training and development programs for new and existing employees. From workshops to online courses, and on-the-job training, a PEO  can ensure that employees receive the highest level of training needed to align with overall business objectives. This in turn ensures that businesses stay abreast of market trends with employees that possess the necessary skills needed to advance within the competitive marketplace. 

How ProSourceSolutions can help you solve all your HR needs

Ready to partner with a PEO? ProSourceSolutions offers a variety of PEO services that can help your business solve all of its HR needs. These include – 

We are dedicated to helping you become an ‘Employer of Choice’. Contact us today and turn your business dreams into reality. 

Posted in PEO