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PEO 101 · What is a PEO
What is a PEO?
A plug-and-play HR back office.
A PEO (professional employer organization) handles payroll, health benefits, work comp and HR paperwork for businesses with 5–500 employees. You still run your company and your team. The PEO takes the employer paperwork off your plate and gives your people benefits that are hard to get on your own.
A PEO handles:
Payroll and taxes
Health benefits
Work comp
HR and compliance
Three ways to handle HR
15-person business · 1 location
Illustrative example
With a PEO
Most covered
Payroll and taxes
Handled for you
Health benefits
Large-group plans
Work comp
Included
HR expert to call
Yes
Labor law updates
Tracked for you
Your time on HR
Least
Payroll company
Payroll only
Payroll and taxes
Handled for you
Health benefits
Not included
Work comp
Separate policy
HR expert to call
Add-on
Labor law updates
Payroll taxes only
Your time on HR
Some
Doing it yourself
All on you
Payroll and taxes
You do it
Health benefits
Small-group rates
Work comp
Separate policy
HR expert to call
No
Labor law updates
On you
Your time on HR
Most
What's included varies by PEO, so compare before you sign.
Well-known PEOs you can compare, including
Sound familiar?
You started a business,
not an HR department.
Most owners don't go looking for a PEO. They go looking for relief from one of these headaches.
“I spend my nights and weekends on payroll.”
Running payroll, filing payroll taxes and keeping records takes hours you could spend on customers. A PEO runs payroll and files the taxes for you.
“Good people turn me down for bigger companies.”
Big employers offer health, dental and a 401(k). A PEO lets a small team offer a similar package, because you buy as part of a much larger group.
“Our health insurance goes up every year.”
A small group has little leverage at renewal. A PEO's large group spreads the risk across many employers, which can help steady your rates.
“I'm not sure we follow every labor law.”
Overtime rules, new-hire reporting, required posters and state leave laws change often. A PEO tracks them and helps keep you compliant.
“Hiring in another state feels like starting over.”
Every state has its own payroll taxes, unemployment accounts and rules. Most PEOs already operate in many states and handle the setup for you.
“One injury claim could really hurt us.”
Work comp is required in most states. A PEO includes coverage, bills it with each payroll so you pay as you go, and helps manage claims.
How a PEO works
Think of a PEO as a wholesale club
for HR and benefits.
Buying health insurance for 12 people is like buying one roll of paper towels: you pay full price. A PEO pools employees from many small businesses into one large group, so you shop at bulk prices. Officially, the PEO becomes your “co-employer”: it handles payroll, taxes, benefits and HR paperwork, while you keep hiring, managing and running your business.
2x
faster growth for small and mid-size businesses that use a PEO
12%
lower employee turnover at PEO clients
50%
less likely to go out of business
4.5M
people work at businesses that use a PEO
Sources: NAPEO and McBassi & Company, 2024 economic study; NAPEO, 2025.
What a PEO handles
Your HR department, shared.
Payroll, payroll taxes and year-end W-2s
Health, dental, vision and retirement plans for your team
Work comp coverage, billed with each payroll, plus claims help
HR experts on call for tricky employee questions
Labor law tracking and compliance support
Employee handbook, onboarding and HR software
Free to compare
See which PEOs fit your business.
Tell us your headcount, location and what you need help with. We'll line up vetted PEOs side by side so you can compare them in plain English.
Who does what
You still run your business.
The PEO runs the paperwork.
A PEO doesn't buy your company or take over your team. It shares the employer paperwork with you. Here's how the work splits.
You keep
Your business and your people
Hiring, firing, pay rates, schedules, job duties and company culture stay your decisions. Your employees still work for you.
The PEO handles
Payroll, taxes and benefits
The PEO runs payroll, files payroll taxes, issues W-2s and manages the health and retirement plans.
You share
Compliance and safety
The PEO keeps you current on labor laws and workplace safety. You follow the policies day to day, with an HR expert a phone call away.
You pay
One invoice, every payroll
Wages, taxes, benefits, work comp and the PEO's fee come together on one invoice each pay period. The fee is usually a flat amount per employee or a percentage of payroll.
What it looks like
A 15-person business, before and after a PEO
Picture a 15-person landscaping company. The owner runs payroll at night, can't offer a health plan, and buys work comp on a separate policy. After joining a PEO, payroll and taxes are handled, the team gets health and retirement options, and work comp is billed with each payroll. See real results in our case studies.
Illustrative example based on common small-business setups.
Before
Owner runs payroll at night
No health plan, so good hires walk away
Work comp bought and audited separately
Labor law questions answered by guessing
After
Payroll and taxes handled every pay period
Health, dental and 401(k) options for the team
Work comp included and paid as you go
An HR expert to call with questions
Quick check
Is a PEO a good fit for you?
If two or more of these sound like you, a PEO is worth a look.
You have between 5 and 500 employees
You or a manager spend hours each week on payroll and HR
You want better benefits to hire and keep good people
Your health insurance renewals keep going up
You have, or plan to have, employees in more than one state
You don't have a full-time HR person, or they're stretched thin
Compare your options
PEO vs. payroll company vs.
doing it yourself.
Do it yourself
Payroll company
A PEO
Who answers HR questions
You (or a search engine)
Payroll questions only
An HR team you can call
Your time on HR
Most
Some
Least
Benefits buying power
Your group only
Your group only
Pooled with many employers
Paying for work comp
Upfront deposit, year-end audit
Upfront deposit, year-end audit
Paid with each payroll
Hiring in a new state
Register everything yourself
Help with tax setup
The PEO handles setup
Handbook and HR policies
Write your own
Usually not included
Templates and review included
Who's the employer on paper
You
You
You and the PEO (co-employment)
Platform launch · December
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For employers
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PEO FAQ
PEO questions,
answered simply.
Reviewed by PEO Marketplace, a licensed Florida insurance agency (#L129491). Last updated October 2026.
What is a PEO in simple terms?
A PEO (professional employer organization) is a company that takes over the employer paperwork for small and mid-size businesses: payroll, payroll taxes, health benefits, work comp and HR compliance. You keep running your business and managing your team. The PEO handles the back office and gives you access to benefits usually reserved for large companies.
Is a PEO the same as a staffing agency?
No. A staffing agency finds and supplies workers for you. A PEO doesn't recruit your team. It supports the employees you already have and the ones you hire yourself, with payroll, benefits and HR help.
What does co-employment mean?
Co-employment means you and the PEO share certain employer responsibilities. You still hire, fire, set pay and direct the work. The PEO handles payroll, tax filing, benefits and some compliance duties. Your employees keep working for you; the PEO's name simply appears on payroll and benefits paperwork.
Will I lose control of my business or my employees?
No. A PEO doesn't own your company or tell your team what to do. Hiring, firing, pay rates, schedules and day-to-day decisions stay with you. You can also leave a PEO, so read the exit terms before you sign.
What's the difference between a PEO and a payroll company?
A payroll company pays your people and files payroll taxes. A PEO does that too, and adds health benefits, work comp, HR experts and compliance help on one invoice. If payroll is your only headache, a payroll company may be enough. If benefits, compliance or employee questions are also on your plate, a PEO covers more.
How small can a business be to use a PEO?
Many PEOs work with businesses as small as 5 employees, and some go smaller. PEO Marketplace focuses on businesses with 5 to 500 employees. NAPEO research finds that almost two-thirds of PEO clients have 10 to 49 employees.
Will my employees get better benefits with a PEO?
Often, yes. Because a PEO buys benefits for a large pooled group, small businesses can usually offer more health, dental, vision and retirement choices than they could alone. Plans and costs vary by PEO and state, so compare the actual plans before you switch.
How much does a PEO cost?
Most PEOs charge either a flat fee per employee per month or a percentage of total payroll, on top of the actual cost of wages, taxes, benefits and work comp. Prices vary a lot by PEO, industry and location, which is why comparing quotes side by side matters. Try our PEO calculator for an estimate.
Do businesses that use a PEO do better?
Research suggests so. A 2024 study by McBassi & Company for NAPEO found that small and mid-size PEO clients grew more than twice as fast as similar businesses, had 12% lower employee turnover and were 50% less likely to go out of business. Read the NAPEO study.
How do I choose the right PEO?
Compare at least two or three PEOs on service, benefits, total cost and contract terms, including exit fees. PEO Marketplace lets you compare 40+ vetted PEOs side by side for free, with every fee decoded in plain English.
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