Article
28 min read
What is a PEO? A Complete Guide for Employers in 2025
PEO
Author
Jemima Owen-Jones
Last Update
April 09, 2025
Published
April 09, 2025
Table of Contents
What is a PEO?
What services do PEOs provide?
PEO vs your team: Who handles what?
Where can you use a PEO?
Benefits of using a PEO
What is the downside of a PEO?
PEO vs employer of record (Global PEO)
Differences between a PEO and a payroll company
Is a PEO the same thing as a staffing agency?
Differences between a PPO and PEO
How to choose a PEO
How Deel PEO is different
Key takeaways
- A professional employer organization (PEO) is a third-party company that provides a company with HR, payroll, benefits, and compliance support.
- PEOs typically offer services such as payroll processing, benefits administration, tax filing assistance, and more on the local, state, and federal levels.
- Deel PEO is a comprehensive solution that is run completely in-house. With Deel PEO, you get white-glove support from certified professionals and exclusive access to Aetna International master plans.
What is a PEO?
PEO stands for professional employer organization. A PEO is a third-party company that provides comprehensive HR solutions for small and mid-sized businesses.
Through a co-employment arrangement, the PEO manages various HR responsibilities, including payroll processing, employee benefits, workers’ compensation, and compliance with employment and labor laws and regulations.
What does co-employment mean?
Co-employment is a contractual arrangement in which a client company shares certain employment responsibilities with a professional employer organization. As the co-employer, a PEO provides human resources services and shares some legal liabilities of employment.
Deel PEO is an in-house solution that empowers your business to attract and retain exceptional talent, maintain full compliance oversight in all 50 states, and ultimately position your business for sustainable growth and long-term success.
What services do PEOs provide?
While PEOs generally offer a similar core set of services, the quality and range of supplementary payroll and HR services can differ significantly. Typical PEO services include:
Payroll administration
- Paycheck deductions
- Payroll registration, taxes, and filing
- Track unlimited paid time off (PTO), sick, and vacation time plans with changes
- Payroll reports
- Issue payroll checks and direct deposits
Benefits admin
- Streamlined benefits enrollment
- Major Medical
- Dental and vision
- Retirement plans
- HSA and FSA
- Short-term and long-term disability
- Basic and Voluntary Life and AD&D
- Accident protection
- Hospital indemnity
- Critical illness protection
- Mental health support
- Clinical care nvaigtion
- Workers’ compensation claims administration
- 401(K) plans access and administration
- Master group plan benefit administration, annual enrollment, and deductions
- COBRA, FSA/HSA/HRA/MEC/MVP/Commuter Benefits, and ACA Reporting
Tax filing and compliance
- Record keeping
- Reporting to tax authorities
- Delivering online pay stubs, invoices, and forms
- Printable W-2 and 1099 forms
- Tax withholding elections and Year-To-Date totals for employees
HR management
- Review and development of an employee handbook manual with policies, procedures, and guidelines
- Access to OSHA and HR compliance
- Leave of absence compliance and administrative services
- Drug-Free Workplace Policy
- Sexual harassment and discrimination training
- Compensation compliance guidance with FLSA as well as state wage and hour laws
- Guidance on EEOC, ADAAA, ADEA, FMLA, CRA concerns
- OSHA compliance assistance
- Assessments, training, trend reviews, and investigations
- Injury and illness prevention program (IIPP)
- Salary benchmarking
- Unemployment claims administration, hearings, and advocacy
- Annual labor law posters with automatic updates
- Employee Assistance Program services
PEO vs your team: Who handles what?
What doesn’t a PEO do? While a PEO streamlines your HR operations, it doesn’t replace your leadership or HR team. You still drive hiring, company culture, employee success, and long-term strategy. The table below explains who is responsible for what in a PEO partnership.
| Responsibility | PEO handles | Your team handles | Shared responsibility | Notes |
|---|---|---|---|---|
| Payroll processing | Yes | PEO runs payroll end to end | ||
| Payroll tax filing and compliance | Yes | PEO handles federal, state, and local filings | ||
| Employee benefits administration | Yes | PEO manages plans, enrollment, and renewals | ||
| Workers’ compensation coverage | Yes | PEO provides access and handles claims | ||
| HR compliance (labor laws, documentation) | Yes | PEO advises and implements best practices | ||
| Administrative onboarding support | Yes | Yes | Yes | PEO handles forms and compliance; your team does internal onboarding |
| Hiring and recruiting | Yes | Your team owns candidate sourcing and interviews | ||
| Final hiring decisions | Yes | Always your decision | ||
| Day-to-day employee management | Yes | You manage performance, workload, and feedback | ||
| Company culture and values | Yes | Culture is entirely internal | ||
| Performance reviews and promotions | Yes | Managed by your team | ||
| Training and employee development | Yes | PEO may advise, but your team owns execution | ||
| Employee engagement and retention | Yes | Engagement strategy is managed by you | ||
| Disciplinary actions | Yes | PEO may advise, but you execute | ||
| Strategic HR planning | Yes | Your HR team owns long-term planning |
Where can you use a PEO?
PEO services are available across the US. Some states have specific requirements for using a PEO, including guidelines for how many employees are required for PEOs for health insurance purposes and whether or not a PEO needs to be registered with the state.
Deel PEO offers support in all 50 states. To learn more about how a PEO can support your company in a specific location, read our state-by-state guide to PEO services.
Benefits of using a PEO
PEOs are particularly beneficial for businesses that want to scale without building an extensive internal HR infrastructure. Here are the top reasons companies choose to partner with a PEO, demonstrating how it can streamline operations, enhance employee benefits, and drive business growth.
Access to better employee benefits
Using a PEO allows small and mid-sized businesses to offer competitive benefits like health insurance, retirement plans, and wellness programs. PEOs pool together employees from multiple client companies, enabling them to negotiate better rates and more extensive benefits packages than a single small business could access on its own.
So many of the founders that I've partnered with are so surprised by what a PEO actually does. All you have to do is go into our system and hire that person in that particular state and our PEO services will take care of everything in the background.
—Phillip Alvarado,
Director, PEO Solutions, Deel
See also: Employee Benefits Renewal Checklist
Streamlined HR management and compliance
PEOs take over complex HR tasks such as payroll, tax filing, workers’ compensation, and regulatory compliance. This helps businesses ensure they remain compliant with ever-changing employment laws and regulations. This reduces the risk of fines, penalties, and legal challenges, allowing businesses to focus on growth and operations.
Reduced administrative burden
By outsourcing HR functions, companies can significantly reduce their administrative tasks and workload. PEOs manage time-consuming tasks like employee onboarding, benefits administration, drafting a summary plan description (SPD), and payroll processing, freeing up internal resources and allowing leaders to concentrate on core business activities.
Using a PEO really does allow you to think about your organization’s health and how [a termination] impacts the organization rather than thinking through, ‘When do I need to do a final paycheck? What are we doing with benefits? Is COBRA information being sent out in a timely fashion?
—Shannon Schiltz,
Operating partner, Andreessen Horowitz
Improved employee retention and satisfaction
Offering competitive benefits, streamlined HR processes, and better employee support through a PEO can enhance job satisfaction and loyalty. Employees appreciate having access to robust benefits and clear HR policies, which can reduce employee turnover and improve retention.
Free guide
A Beginner’s Guide to HR Outsourcing
State-specific employment and labor law compliance
In the US, employment, labor, and payroll laws can vary from state to state. Some states even have county- or city-specific requirements. If you’re new to hiring US employees, complying with these requirements is extremely difficult to do on your own.
The PEO you work with should include in-house payroll, HR, and legal experts who can help you understand and comply with these requirements.
State-specific laws include:
- Income taxes: State Income Taxes Explained: Your 2025 Guide
- Minimum wage: US Minimum Wage: A Guide for Employers [2025]
- Unemployment insurance: State Unemployment Insurance (SUI) Rates by State (2025)
- State tax reciprocity agreements: State Tax Reciprocity: Filing Your Taxes Made Easy
- Supplemental taxes: Supplemental Tax Rates by State (2025)
- At-will employment: At-Will States: Employer Rights, Termination Laws, and Compliance
- Payroll and withholding taxes: US Payroll Taxes: Your State-by-State Guide
- Pay transparency: Pay Transparency Laws in the US – A Definitive Guide
- Paid time off (PTO) payouts: PTO Payout Laws by State: Ensuring Full Compliance with US Requirements
Scalability and growth support
A PEO provides scalable HR solutions for businesses experiencing rapid growth or looking to expand into new US locations. PEOs can quickly onboard new employees, ensure compliance across different states or countries, and manage growing administrative demands.
Interested in hiring in the US?
In our webinar, we explore the complexities and strategies for expanding your team in the US. We cover what makes US expansion complex, your hiring options, and how a PEO can help.
This session features insights from industry experts Sasha Medvedovsky, Co-Founder & CEO, Diversion Company, and Shannon Schiltz, Operating Partner at Andreessen Horowitz, alongside Deel's Director of PEO Solutions, Phillip Alvarado.
What is the downside of a PEO?
PEO services may not be the best solution for your business. Consider the following:
No international coverage
Standard PEOs specialize in local law and compliance in the US. Global companies that hire and operate internationally require expertise in international labor law and regulatory compliance to avoid fines, claims, and penalties.
Deel PEO is part of Deel's all-in-one global payroll and HR platform, enabling you to manage both US and international workers in one place.
Shared liability
PEOs do not assume full legal responsibility since they are a joint employer. This arrangement means the client company could still be liable if a legal dispute arises, for example, if the PEO fails to pay employees the correct overtime in line with the law.
Less control over benefit plans
When a company chooses a PEO, they buy into the service packages a PEO offers. Suppose your employees like their current benefits carrier. In that case, they may be forced to use another if the PEO prefers a particular provider.
This depends on the provider—Deel PEO enables you to retain your current benefits provider via benefits carve-outs. Deel also has 60 domestic benefits plans to choose from, providing you with comprehensive options.
PEO vs employer of record (Global PEO)
PEO services are specific to the US. Employer of record (EOR) models can be used in many different countries and are not US-specific. EOR services are often referred to as “global PEO services” since there is some overlap in services.
Below is a breakdown of the differences between PEO and EOR services (also known as global PEO):
| Feature | PEO | EOR (Global PEO) |
|---|---|---|
| Geographical scope | Primarily within a single country (e.g., US) | Operates across multiple countries |
| Definition | HR services for domestic employees | Facilitates international hiring and employment |
| Employer status | Co-employer | Legal Employer |
| Need for local entity | Requires a local entity | Enables hiring without the client establishing a local entity |
| Liability | Shared with the client | Primarily assumed by the Global PEO/EOR |
| Typical services | Payroll, benefits, HR advice, compliance (local) | Global payroll, global benefits, international compliance, onboarding, offboarding |
Learn more in our guide to EOR vs PEO.
Differences between a PEO and a payroll company
When deciding between a PEO and a payroll service provider (PSP), it's important to understand their distinct offerings. Below is a comparison to help guide your decision:.
| Feature | PEO | Payroll company |
|---|---|---|
| Services | Full-service HR: payroll, compliance, benefits, and more | Payroll processing and tax filing only |
| Employment model | Co-employment: Shares legal responsibilities | No co-employment: You retain all liability |
| Compliance support | Broad HR and labor law compliance | Limited to payroll tax compliance |
| Benefits access | Offers competitive group benefits or ability to retain preferred providers | Often refers to third parties |
| Workers’ comp | Provides coverage and manages claims | May process deductions only |
| Entity requirement | Must have a registered business entity | Must have a registered business entity |
| Best for | Teams needing full HR support and risk mitigation | Teams needing only payroll help |
Is a PEO the same thing as a staffing agency?
Staffing agencies are not the same thing as PEOs. Temporary staffing services provide client companies with additional staff. These organizations recruit workers for companies experiencing seasonal shortages, temporary skill shortages, or employee absenteeism.
| Feature | PEO | Staffing agency |
|---|---|---|
| Services | Payroll, benefits, compliance, HR admin | Talent sourcing, temp, or contract placement |
| Employment model | Co-employment with your business | Staffing agency is legal employer of record |
| Who hires the worker | You source and manage your employees | The agency recruits and assigns workers |
| Worker relationship | Long-term team members managed by your company | Often short-term, project-based, or temp workers |
| Compliance support | Helps with labor laws, taxes, and benefits compliance | Limited to agency-handled workers |
| Use case | Scaling HR operations, managing benefits, staying compliant | Filling roles quickly, especially for short-term or specialized needs |
Differences between a PPO and PEO
A PPO is a preferred provider organization, which is a type of health insurance plan that offers flexibility in how and where a person gets care. It is not the same as a PEO.
| Feature | PEO | PPO |
|---|---|---|
| Category | HR and employment services | Health insurance plan |
| What it does | Helps businesses manage payroll, HR tasks, benefits, and compliance | Offers employees flexible access to doctors and healthcare providers |
| Who uses it | Employers looking to outsource HR functions and reduce compliance risk | Employees choosing a healthcare plan |
| Main benefit | Streamlines HR and legal responsibilities, shares liability with employer | Freedom to choose doctors and specialists without referrals |
| Example service | Payroll processing, employee benefits, and HR compliance | Health coverage from in-network and out-of-network providers |
| Who pays for it | The employer contracts the PEO | The employer and/or employee pays health insurance premiums |
| Relationship | A business partner that co-employs your team | A health plan offered to employees, often through a PEO or employer |
Deel PEO
How to choose a PEO
"If you're a small organization expanding to the US for the first time, a PEO should absolutely be on your evaluation list,” says Phillip Alvarado, Director of PEO Solutions of Deel.
Choosing the right PEO is a strategic decision. It affects how you manage compliance, offer benefits, and support your team. Use this quick guide to vet vendors and avoid costly missteps.
Questions to ask potential PEO providers
-
What states and industries do you support?
Ensure they’re equipped to serve your geographic footprint and business type. -
Do you offer certified or accredited PEO services?
Look for IRS-certified or ESAC-accredited providers for added regulatory assurance. -
Who handles compliance—do you have in-house experts?
In-house payroll and legal teams reduce the risk of errors and delays. -
How are benefits sourced and managed?
Ask if they offer big-company plans, how they handle ACA and COBRA, and if plans can scale with your workforce. -
What’s your approach to customer support?
Ask about service-level agreements (SLAs), response times, and support availability. -
Can I see your platform in action?
Request a product demo to assess UX, navigation, and available automation. -
Do you integrate with my existing systems?
Confirm compatibility with your payroll, HR, or accounting tools.
Key factors to evaluate
| Factor | What to look for |
|---|---|
| Compliance | Local/state/federal compliance, ongoing legal updates, documentation support |
| Benefits | Competitive packages, ACA/COBRA admin, retirement plans, tailored options |
| Data and reporting | Real-time dashboards, customizable reports, global payroll visibility |
| Scalability | Multi-state support, future global capabilities, flexible plan structures |
| Security | Strong data encryption, third-party audits, defined breach protocols |
| Automation | Streamlined onboarding, payroll processing, benefits enrollment |
| UX | Easy navigation, mobile access, employee self-service tools |
How Deel PEO is different
Deel is an all-in-one payroll and HR platform for global teams. This means you can manage PEO, global payroll, IT, EOR, contractors, visas, and more—all in one platform.
Deel’s in-house PEO is built to support fast-growing teams with the tools, coverage, and service they need, all in one platform.
“Most PEOs can’t support international teams," says Kerry Ashby, Head of PEO Operations at Deel. "They’ll send you off to another vendor. Deel’s different—we support your workforce globally, all under one roof."
Fully in-house support
Deel PEO is run entirely by internal specialists, including certified professionals, licensed advisors, and dedicated HRBPs. Clients get direct access to expert guidance across payroll, benefits, and compliance, with no third-party handoffs or delays.
Benefits admin made easy
Admins can choose, enroll, and manage health benefits for US employees directly in the Deel platform. They can view costs, track coverage, and handle renewals—all in one place, without chasing brokers or juggling paperwork.
Exclusive access to Aetna International plans
For teams with globally mobile employees, Deel is the only PEO to offer Aetna International health plans for US W-2 employees, ensuring continuous coverage across borders without needing to manage separate providers.
All-in-one platform
Admins can manage hiring, onboarding, payroll, and benefits in one place. Deel simplifies every step, from enrollment to renewals, reducing HR admin time.
Compliance coverage at every level
Deel helps businesses meet federal, state, and local employment laws, taking the guesswork out of US HR compliance.
Explore how Deel’s in-house PEO can help you offer better benefits and stay compliant from day one, or book a demo to see the platform in action.
FAQs
What’s the difference between PEO and HR?
A PEO is a cost-effective way to outsource payroll, benefits, and compliance tasks. An HR team is better for companies that want full control over people operations, culture, and strategy. Many growing companies use both—a PEO for operations, and a lean internal HR team to focus on people strategy.
How many employees do you need for a PEO?
What is a certified PEO?
In the US, PEOs can earn certified status, which means they meet the IRS financial, reporting, and legal requirements and have been recognized and awarded with an ESAC certificate. To find a service partner with the expertise you need, visit the National Association of Professional Employer Organizations (NAPEO) directory.
How do you leave a PEO?
Leaving a PEO requires careful timing and planning to minimize risks and avoid disruptions. A detailed strategy can ensure the transition is smooth for both employees and the organization. Learn how to:
- Prepare for the transition
- Evaluate potential PEOs
- Develop a transition plan
- Guide employees through the transition
- Migrate data without information loss
- Handle legal and compliance matters securely, including considerations for COBRA participants
- Train and onboard employees to the new platform
- Monitor and adjust the service to ensure long-term success
Follow this checklist for a clear guide: Checklist: How to Change PEO Providers
About the author
Jemima is a nomadic writer, journalist, and digital marketer with a decade of experience crafting compelling B2B content for a global audience. She is a strong advocate for equal opportunities and is dedicated to shaping the future of work. At Deel, she specializes in thought-leadership content covering global mobility, cross-border compliance, and workplace culture topics.
