Home - Payroll Management & Administration, HR Outsourcing - When Should Your Business Use a PEO vs In House

When Should Your Business Use a PEO vs In House

When Should Your Business Use a PEO vs In House

A Professional Employer Organization (PEO) provides your small business with streamlined HR outsourcing. At the same time, the average return on investment (ROI) of working with a PEO is 27.2%.

However, depending on the needs of your business, your current size, and your growth level, you may find it better to keep your HR in-house.

So, when should you use a PEO, and when should you go in-house? For that matter, why use a PEO?

Payroll Management

When your company exceeds about 500 employees, only then does it become more cost-effective to process payroll in-house. Before your small business reaches that threshold, you may benefit from PEO services such as payroll processing.

When you partner with a PEO, the PEO becomes the employer of record for your team. This has no impact on your ability to control your business and your employees. The status allows your PEO to process payroll and taxes on your behalf. As will be shown below, it is also the key to massive cost savings regarding benefits and workers’ compensation insurance.

HR Administration

HR administration includes many mundane and repetitive tasks. However, mistakes can result in costly fines for your business. By outsourcing these tasks to a PEO, you free up your internal HR team to focus on employee engagement and culture, helping your business increase retention and attract top talent in your industry. At the same time, you no longer have to worry about whether or not you are fully compliant with the latest federal or state law.

As your staff grows, your savings by outsourcing HR will also decrease. But keep in mind you will still have a positive ROI even after you pass the threshold of 200-300 employees. 

When PEOs handle administration, your in-house HR team can focus on creating a positive work environment and attracting the highest quality talent. By outsourcing these mundane HR tasks to a PEO, your business can also reap a 21% savings on HR administration. 


Why choose a PEO? A major source of cost savings for small and mid-sized businesses who work with PEOs comes from having to pay less for benefits. This is possible, in part, through a co-employment relationship with your PEO. Through co-employment, you retain sole and exclusive control of the day to day operations of your business, including hiring, firing, and discipline of your staff. The PEO is the “employer of record” only for tax purposes.

Because the PEO is “employer of record” for all employees of all client businesses, they negotiate with insurance carriers using economies of scale. This results in small businesses getting Fortune 500 benefits at Fortune 500 prices.

Workers' Compensation Insurance

With few exceptions, every employer must carry workers' compensation insurance. This helps to protect your employees should they suffer an injury on the job. This insurance will cover their lost wages and medical expenses. 

But workers' compensation insurance can be a big expense for small businesses. A PEO can help save workers' compensation expenses for your business. 

If your small business has never carried workers' compensation insurance or you have claims on your record, your experience modifier, or e-mod, rate might be high, resulting in high premiums. 

When you work with a PEO, your workers' compensation insurance premium is based on the PEO's e-mod rate meaning you end up paying a lower premium.

You may also pay a lower workers' compensation insurance premium with a PEO for the same reason you see a reduction in the cost to provide benefits - co-employment. With more employees, the PEO is able to negotiate better rates through economies of scale. The PEO then passes these reduced rates on to you.

Benefiting From a PEO Partnership

Small and mid-sized businesses benefit greatly with the right PEO partnership. By outsourcing certain HR tasks, your small business can see an increase in employee retention and productivity, while simultaneously seeing a decrease in your overhead. Even large companies can reap these same benefits.

With a PEO, you can access better benefits and workers' comp while seeing a cost reduction in both. To learn more about how this works download " How PEO Co-employment Reduces Risk and Rewards Employers."

New call-to-action


Payroll Management & Administration, HR Outsourcing