A PEO, or professional employer organization, provides comprehensive human resources outsourcing solutions to small and medium-sized businesses. Typically, a PEO delivers services such as employee benefits administration, payroll processing, tax compliance, worker’s compensation, risk mitigation, human resources management, and others under a co-employment model. This arrangement allows the client company to remain focused on their core business functions while the PEO handles HR-related responsibilities.

Startups face unique challenges on the road to maturity. As your business grows, so do the strains from employee-related services and government regulations. Inevitably, the critical attention of your leadership is diverted away from strategic decision making to everyday people operations.

You have enough to worry about without administrative burdens slowing you down and distracting you from your business goals. By turning to a Professional Employer Organization (PEO), you can outsource key HR responsibilities to a trusted partner who will help you with employee benefits, payroll, workers’ compensation, onboarding, risk and safety management, and training and development. A PEO can also provide experts in legal matters and compliance, help you control costs and business risks, and free up resources on your team by handling the large majority of employee inquiries.

From a legal perspective, a PEO hires a client company’s employees by accruing wages under its Federal Employer ID and thus sharing responsibility for payroll tax and insurance purposes.

Many PEOs specialize in various areas including local, multi-state, national, and global. Some are IRS-certified and some are not. While most PEOs offer resources, payroll, and benefits administration, the level of service included in the PEO varies. When evaluating which PEO is right for your company, you’ll want to make sure the PEO provider offers services and solutions vital to your company’s current and future operations.

While any size company can find value in partnering with a PEO, companies who typically choose to work with a PEO have around 10-200 employees. This is because smaller businesses and startups do not traditionally have a fully-stacked internal HR team with members who specialize in HR, payroll, compliance, benefits, compensation strategy, workers’ compensation, accounting, and more. Larger companies may still find a PEO to be extremely valuable if they want to alleviate pressure facing their people team and refocus that team on more strategic goals.

Startups can largely benefit from outsourcing HR services to a PEO. As they enter a critical phase of growth and expansion, startups need to be able to attract and retain the best talent, but often lack the necessary resources or expertise in HR management. Managing payroll, benefits, and legal compliance can become a burden and shift focus from the startup’s core competencies. Here, a PEO can step in to manage these functions, allowing the startup to focus on its strategic goals and operational challenges.

Outsourcing HR to a PEO also ensures startups stay in compliance with the latest employment laws and regulations. This is particularly beneficial as employment legislation can be complex and continually evolving. By outsourcing to a PEO, startups have access to experts in HR compliance, ensuring they avoid costly legal issues.

Additionally, a PEO can provide startups access to better employee benefits packages, which can help attract and retain top talent—giving startups the competitive edge necessary to be successful.

Your largest expense is your people and your PEO partner will manage this expense strategically. Employees of your startup gain access to “big-business” benefits such as healthcare, dental, vision, life insurance, disability, dependent care, retirement, and other benefits they wouldn’t receive at another small company. PEOs also provide support to your employees, allowing them to feel more connected to training, culture, and the total rewards your startup provides.