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Common PEO Myths Debunked

There are many myths surrounding professional employer organizations (PEOs). Here, we debunk a few of the most common misconceptions and set the record straight.
Myths about PEOs

Professional Employer Organization (PEO) myths abound due in part to the rapid growth of PEOs and the spread of inaccurate information online. Here's a way for business owners to separate myth from reality, so they can more easily decide whether a PEO and the benefits it can provide are right for their company.

Myth 1: PEOs Are Only for Large Companies

Larger corporations have led the way in the adoption of PEOs as a means of controlling the costs of labor and other HR and payroll expenses, but in fact, small businesses can see an equal (if not greater) benefit from this approach. Lacking a dedicated HR infrastructure, many small businesses find using a PEO can make it easier for them to compete against larger companies for skilled talent, especially where they are able to offer a more extensive benefits package..

Myth 2: Partnering With a PEO Means Losing Control of Your Business

Business founders and leaders have a unique vision for the future, and a PEO co-employer relationship can actually help entrepreneurs realize that vision. The role of a PEO is to assist with many HR and payroll related administrative duties—the kind that could bog down business owners. Think how much more focused you can be on your long-term strategy when you're no longer consumed by non-core and non-revenue generating functions. That's where a PEO helps fill the gap.

Myth 3: Employers Lose the Right to Hire and Fire Personnel

This is another common misconception of how PEOs work. The PEO provides support and assistance with administrative duties where it's needed. Business owners retain control of daily management, including the recruitment of employees and the freedom to terminate the employment of underperformers. PEOs are not temporary staffing agencies. There's no one telling you who to hire or fire.

Myth 4: Working with a PEO Means No More HR Manager or Team

Think about the tasks currently occupying your HR manager's time (or your own time, if you have no one in the position): everything from writing and posting job descriptions and openings, to developing a comprehensive employee handbook, and much more. The support and extensive resources of the PEO gives your HR staff the freedom to work toward more strategic goals, such as new types of performance initiatives to drive productivity or benchmarking employee management best practices for your business. An in-house HR manager and team are likely spending most of their time consumed with administrative and compliance tasks, and will benefit from the time and cost saving services offered by a quality PEO.

Myth 5: A Competent Office Manager Can Do the Work of a PEO

Even a trusted office manager or administrative assistant may not have enough time in the day to keep up with changing regulations while also balancing their other duties. If you can't stay abreast of your compliance obligations, your business may be at risk for potentially costly penalties and litigation. Compliance assistance can be a key strength of a good PEO and can help provide immeasurable peace of mind for worried business owners.

Myth 6: In Essence, a PEO is a Payroll Service

While a PEO does process payroll and take care of payroll tax filings, it also offers support in other areas, such as:

  • Employee benefits
  • Compliance
  • Worker safety and compensation
  • HR administration

Each of these tasks—and others offered by most PEOs—are aimed at meeting the particular needs of small businesses. Competent PEOs go beyond "cookie-cutter" assistance to provide programs tailored to best serve their clients’ specific needs.


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* This content is for educational purposes only, is not intended to provide specific legal advice, and should not be used as a substitute for the legal advice of a qualified attorney or other professional. The information may not reflect the most current legal developments, may be changed without notice and is not guaranteed to be complete, correct, or up-to-date.