Busting Popular PEO Myths: How to Separate Fact from Fiction

March 8, 2024
PEO Myths

Professional Employer Organizations (PEO) provide comprehensive HR outsourcing services for small and mid-sized businesses. These organizations help handle payroll services, perform time-consuming HR administrative functions, collect and remit employment taxes for payroll paid through the PEO’s platform, and provide best practice guidance on employment-related rules and requirements. Depending on the client agreement, they may perform many other modern HR functions.

When a PEO contracts with a client company, the PEO is the co-employer. In a co-employment relationship, the client company continues managing its daily operations and makes workforce decisions on hiring, firing, and compensation. The PEO is the employer of record for payroll tax purposes and assumes specific employer-related responsibilities as described in the client agreement.

PEOs are generally responsible for the client company withholding and remitting employment taxes. They often provide other services as allocated in the client agreement.

Working with a PEO can be confusing and seem complex, especially when some commonly believed premises about them are inaccurate. This article will cover the biggest PEO myths and share whether any are true, partly true, or false.

Debunking PEO Myths

Organizations with a clear understanding of a concept can make better decisions to maximize productivity, profit and growth. Some view PEOs negatively because of partly or completely untrue information. Let's look at some of the biggest PEO myths.

Do businesses lose control?

The myth. A PEO controls important business aspects and the organization no longer has any say in them.

The facts. PEOs help with some of the company's most crucial business HR operations. They also offer compelling benefits to HR professionals, like help improve decision-making, increase efficiency, and create a better employee experience. When PEOs help with these HR tasks, it frees up time for business leaders to pursue more revenue-producing objectives. In that way, it gives them more control of the things that matter most to them.

This myth is ... FALSE. The company still maintains control of every element of its business.

Can businesses no longer decide who gets hired and fired?

The myth. Outsourcing administration of HR tasks to PEOs lets them take over everything about employee management, including who is hired and who is let go.

The facts. Organizations always maintain control of their workforce. While PEOs may help with related HR tasks the ultimate employee decision doesn't come from them.

This myth is ... FALSE. A company maintains control of all employee decisions including who to hire or terminate.

Will the owner have restructure the HR manager or team?

The myth. Buying into an either/or mentality makes some companies believe that, if they work with a PEO, they need to get rid of their HR staff.

The facts. Organizations can use PEOs along with their current HR department to get maximum productivity out of both. PEOs can help handle one set of HR tasks, like increasing the automation of manual, repetitive tasks. The in-house HR team can focus on people operations, personal interactions and other important initiatives that elevate the workforce and enhance employee satisfaction.

This myth is ... FALSE. PEOs complement HR teams instead of replacing them.

Will my company lose its status as a small business?

The myth. Working with a PEO could result in an organization losing its small business status and the perks that go along with it.

The facts. Working with a PEO should not affect a company's small business status. The relationship may even offer the company more opportunities to benefit as a small business, such as employee information reports will be better organized and easier to access through the PEO’s technology platform.

This myth is ... FALSE. Small businesses don't need to worry about their small business status.

Will the change upset my employees?

The myth. A company's employees won't like the changes that occur because of a new PEO. This will hurt morale and make them less engaged.

The facts. Employees often gain access to premium benefits when a company works with a PEO. This also means it can get access to other benefits like retirement plan, commuter benefits, health and dependent day care reimbursement accounts along with employee discounts and other perks. And because PEOs can stay up-to-date on technology, employees often find that the user experience for many HR functions is much more accessible and intuitive.

This myth is ... FALSE. A business shouldn't be concerned with employees not welcoming a PEO. The change may actually increase employee engagement and satisfaction.

Do PEOs damage company culture?

The myth. Many organizations work hard to build a rich, positive culture, and they worry that a PEO will spoil that.

The facts. Employees are happier with the wider array of resources at their disposal through a PEO. Instead of hurting the culture, a PEO can add to it with access to premium benefits and more opportunities for training and career building through PEO’s learning management solution. In general, the contact between employees and a PEO is not something that would damage the company culture. The PEO will help enhance the company culture.

This myth is ... FALSE. Employees may feel even more appreciated and rewarded with a PEO's services.

Are all PEOs the same?

The myth. Every PEO offers the same service and products.

The facts. As with most competitors in a free economy, PEOs differ from one to the next. They may offer different products, provide different types of service, and charge different rates. In addition, some are accredited and others are not.

This myth is ... FALSE. A company should closely review its options before choosing a PEO.

Is PEO just another name for employee leasing?

The myth. PEOs are just like employee leasing companies that provides employees with businesses temporarily.

The facts. A PEO does not lease employees. PEOs provide services to clients and its employees through a co-employment arrangement.

This myth is ... FALSE. PEOs do not lease employees or supply employees.

Do PEOs offer the same services as ASOs?

The myth. PEOs perform the same functions as Administrative Services Organizations (ASOs).

The facts. As with PEOs and HROs, there are differences between PEOs and ASOs. ASOs may offer some of the same services as PEOs, like basic payroll processing and benefits administration, but that's where the similarities generally end. PEOs offer access to benefits and other services that companies can't access through ASOs.

This myth is ... FALSE. PEOs provide organizations typically with more comprehensive services than ASOs.

Do PEOs have a positive ROI?

The myth. PEOs are too expensive to be worth it.

The facts. Working with a PEO can bring a high return on investment in terms of cost-effective benefits, help to reduce certain overhead costs, and streamline HR operations. PEO costs are also optimized by improved employee engagement, which indirectly can help with costs associated with employee retention.

This myth is ... FALSE. The ROI from using a PEO is typically positive and can be significant.

Are PEOs only for big businesses?

The myth. Only large companies need to use PEOs to help with HR objectives.

The facts. The PEO industry serves an estimated 173,000 small and medium-sized businesses. More than 15% of employers with 10 to 99 employees now contract with a PEO. They are a cost-effective way to add employee resources and automate large tasks like payroll processing and payroll taxes administration.

This myth is ... FALSE. Large, small and medium size companies can all benefit from working with a PEO.

Learn the facts about PEOs

Ignoring the myths and choosing the right PEO could be a smart way for your business to tighten up efficiency and free up time to grow the organization. With its cost-effective and tailored solution, a PEO offers tools and resources to help keep employees engaged, help with tedious HR tasks and provide HR expertise to help companies comply with employment-related rules and requirements.

TriNet is a resource-rich, cost-effective solution to your company's PEO needs. Alternatively, TriNet offers HR outsourcing options where you can engage as few or as many of our outsourced HR services as your company needs to thrive. Learn more about our solutions here.

This communication is for informational purposes only, is not legal, tax or accounting advice, and is not an offer to sell, buy or procure insurance.

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