Payroll: PEO or Not?

When a startup in thinking of their payroll system, one question almost always comes up, do we choose a PEO or not? So, what is a PEO?

A PEO, Professional Employment Organization is your outsourced HR partner. The company will have a co-employment agreement with the PEO. Co-employment means the PEO is the employer of record, it takes on the HR role, responsibility and any associated liabilities. There are some huge benefits of a PEO, some of them are:

  1. You can hire employees in multiple states and sometimes multiple countries and the burden of meeting all payroll responsibilities is with the PEO. You do not have to setup your accounts with the states or countries yourself. Similarly, when you don’t have employees in those states you don’t have to worry about cancelling your accounts.
  2. You do not need to be up to date on the changes in HR laws; the PEO would keep track of it and implement those changes on your behalf.
  3. You get access to a number of benefit options, you do not need to work with brokers to understand, select and then implement those benefits.
  4. Your get access to HR experts and Employment Lawyers in case you have some HR issues.

But just like everything else, there is a flip side of the coin. The biggest drawback of the PEO is the fee, I have worked with a few PEOs (ADP, Trinet, Paylocity) and their fees are huge! In a startup where we always try to reduce costs, this is a big deal! There are other negatives, but to me as a startup person, the cost is a big issue!

There is one more thing to remember when looking at a PEO for a startup, in my experience co-employment is like co-parenting; even though one parent on paper might have more responsibilities, the parent with whom the child mostly resides does end up taking care of the child more! I have seen my startup employees who have any question on their benefits, their paystubs, or any HR issues have always come to me first and I have been their first point of contact. I was still the face of the HR/Payroll function. So even with a PEO it is a good idea to have someone who understands HR/Payroll to be the in-house expert.