A PEO is a company that can take care of HR responsibilities, primarily for small and midsize companies. PEOs have drawbacks, but can manage HR functions, like employee training and development, risk and compliance, workers' compensation, payroll, and benefits, with some offering these services bundled in a preset package, and some offering customizable plans with a la carte features.

PEOs differ from typical HR outsourcing services by operating under a co-employment model, meaning your employees appear on the PEO's "books" for legal and tax purposes. This allows PEOs to act as massive corporations with hundreds of thousands of employees. PEOs can negotiate contracts with employee benefits providers for more favorable rates on unemployment and workers' compensation insurance. It also gives them the power and scope to build and leverage powerful time-tracking and payroll technology for small businesses.

When you sign on with a PEO, you'll work closely with customer success managers (and other team members) to build the services you need for your small business. As your business grows, your PEO can adjust to meet your needs. Working with a PEO under the co-employment model is essentially partnering with a team of specialists to build out the administrative and back-end processes of your organization. If it makes sense for your business financially, these organizations can take out a lot of the stress (and handle most of the legwork) of running your business so you can focus on more pressing needs.

Roughly 175,000 small and midsize businesses partner with PEOs to get high-quality benefits and proper HR support to help their businesses run smoothly. A PEO must adhere to both state and federal regulations, so some companies are divided up by region or even state.

As you search for a PEO, keep your state and region in mind - some PEOs are only qualified to serve small businesses in some states, whereas others have global partnerships. Most of the companies we reviewed are qualified to offer coverage in all 50 states. If you're curious about whether a certain PEO operates in your state or not, you can look it up in the National Association of Professional Employer Organizations' directory.

Many small businesses find it helpful to partner with a PEO that can handle the HR functions that are essential to hiring and keeping employees. As your business expands and you need to hire more workers, it becomes critical to offer benefits such as healthcare, and others that are harder to find. Quality benefits help you attract and retain competent, hardworking staff. PEOs relieve the stress and legal paperwork burden of hiring and onboarding these new employees. They can also help your business comply with federal and state regulations throughout your HR processes.

HR Administration
The primary function of a PEO is to take care of human resources so that business owners can focus on other duties. PEOs can provide as much or as little HR assistance as you need. They can manage HR tasks such as employee handbook and policy creation, employee onboarding and termination, unemployment assistance, and compliance reporting. Their features are typically accessible through intuitive online platforms and mobile-friendly applications. These platforms make it easy to access all of your HR functions in one place.

Payroll Processing
One major function of most PEOs is payroll processing. Since your employees are on the PEO's books, it tracks their time and attendance – including hours worked, paid time off, sick time and vacation days – through its online platform and helps prepare and issue their paychecks. It can also process employee liens and garnishments if necessary. Many PEOs can manage and report your quarterly and year-end state and federal deposits and filings. A PEO taking care of your payroll can save you a lot of time and therefore money. A reputable PEO will always pay your employees accurately and on time, which could improve your company culture if payroll has been hard to manage in-house.

Risk and Compliance
PEOs are usually well versed in the laws and regulations that your company has to follow, so they can help you manage risk and legal compliance for your business. This service is especially beneficial if you operate in multiple states or regions with varying employment laws. PEOs can help your business comply with the Affordable Care Act, the Health Insurance Portability and Accountability Act, and the Occupational Safety and Health Administration. They can even conduct employee accident investigations and perform onsite safety inspections and job hazard analyses in some cases.

Employee Benefits
Since PEOs have so many employees on their books, they have access to affordable, desirable employee benefits, including medical, dental, vision and life insurance. Some even offer health savings accounts, flexible spending accounts and health reimbursement arrangements. They often provide long- and short-term disability insurance, employee assistance programs, and retirement options like 401(k) plans. Many PEOs offer a wide selection of fringe benefits too, such as commuter reimbursement programs and parking discounts.

Workplace Training and Employee Development
Most PEOs offer standard workplace training on topics like sexual harassment and discrimination. Many of them offer additional onsite and virtual training on leadership, communication, workplace technology, recruitment, disciplinary actions, and social media. Some even offer industry-specific training. This access to employee training and development materials can help you encourage growth and skill advancement for your team. PEOs that offer training and development often have an online platform to track and report employee course results.