How To Choose a PEO: Top 12 Questions To Ask & Features To Consider Before You Decide

How much time and money do you spend on HR tasks? According to our research, almost two-thirds of companies spend more than 570 hours a year on HR administration, and larger businesses (up to 500 employees) spend as much as $375,000 annually on HR.

HR is complicated, but it doesn't have to be. Choosing to work with a PEO can transform your HR department from a cost center to a value creator while freeing more of your limited time and energy from the demands of administrative HR tasks. If you feel overburdened and overwhelmed by HR demands, a PEO could be the secret to simplifying your HR department and giving you more bandwidth to focus on what matters most - running your business.

What Is a PEO?

A Professional Employer Organization (PEO) provides outsourced solutions for everyday HR administrative tasks throughout the employee life cycle. From hiring and onboarding to payroll, employment taxes, and benefits, PEOs help shoulder the HR burden on your behalf so you can spend more time on core activities and strategic imperatives.

Here's what you could save when you work with a PEO:

• Up to $1,775 per employee per year in HR-related costs
• Savings averaging 37% on employee health benefit costs
• Savings averaging 30% related to unemployment insurance
• Time and money spent hiring, retaining, and motivating employees

Why Choose a PEO?

As a business owner, you know that your people are the key to your success. You also know that your time is valuable, and you can't afford to waste it. All the while, according to Paychex research, one-third (34%) of leaders spend more than 10 hours a week on HR administration tasks, and time spent on HR increases proportionally with company size.¹

Choosing a PEO helps you prioritize your people and protect your time by allowing you to:

• Reduce administrative burden: Outsourcing business-critical HR tasks to a PEO helps you with timely completion while lifting the administrative burden off your shoulders.
• Focus on your core business: Reducing your administrative load can give you back hours each week, allowing you to focus on strategic business activities and better navigate business challenges.
• Boost employee engagement: A PEO can help you engage employees by proactively addressing employee concerns and prioritizing professional development.

But how do you choose the right PEO for your business?

First, consider where you need extra support. Do you need help with payroll processing and benefits administration? Or are you looking for a solution that delivers a holistic HR experience? Most PEOs offer the same core services, including payroll and taxes, employee benefits, insurance, and regulatory compliance support. In addition to these standard services, they may also offer targeted support in areas like recruiting and hiring, professional development, learning management, and employee relations.

Once you've determined your needs and requirements, you can research and evaluate PEO providers based on how well they match your needs and budget.

The Go-To Retention Tactics Leaders Are Using

Working with a PEO can help you retain more of your best employees by more effectively addressing their expectations and needs. Just how important is retention for business success?

More than half of the business leaders we surveyed said that attracting and recruiting is their top challenge, and talent management is the third most pressing challenge, according to a recent Paychex survey. The survey also found that 90% of leaders plan to concentrate on employee engagement, retention, and professional development in the coming year.

The number one retention strategy leaders plan to pursue in 2025 is supporting employee well-being physically, financially, and in terms of mental health. Pay increases, better benefits, and flexible work opportunities also made the list of priorities for retention efforts.

Here's how selecting a PEO can help you achieve those goals according to feedback from business leaders:

• Offer world-class benefits: Improve retention and gain a competitive edge over other employers by offering benefits that rival Fortune 500 companies, supported by seamless enrollment and administration.
• Offer flexible work arrangements: Manage remote and hybrid workers effectively while improving productivity.
• Address compliance guidelines: With tailored action plans from a team of specialists, reduce risk, keep employees safe, and stay compliant with your industry's regulations.
• Make better decisions: Get detailed analytics and reports that help you make better hiring, retention, and talent management decisions.
• Streamline processes: Leverage HR technology to improve recruitment and manage HR, payroll, and benefits with self-service tools and insights.

The benefits of outsourcing HR tasks to a PEO may vary based on company size and growth stage. However, the bottom line is that choosing a PEO can reduce administrative workload, support compliance, and help you provide world-class benefits and resources to your employees.

Features To Look For When Selecting a PEO

Working with a PEO is a proven success strategy, and leaders expect to see tangible, measurable benefits. Two-thirds of business leaders surveyed say it's extremely or highly likely that they will choose a PEO to outsource HR administration tasks in the next 12 months.

The HR tasks leaders outsource to a PEO vary but cluster around common themes like payroll, benefits, recruiting, and talent management. The PEO you choose can help you become an employer of choice by offering Fortune 500-type benefits and employee services. The right PEO will help you with goals like improving retention, boosting productivity, enhancing performance management, and streamlining administrative tasks.

Here are some of the most common PEO services to look for when choosing a PEO:

Payroll Processing

PEOs take on payroll processing, filing taxes, tracking earnings, and generating payroll reports. This service alone can give you back hours each week as you manage your workforce. Consider choosing an IRS-certified PEO to help protect yourself from liability for unpaid taxes, late penalties, or interest.

Employee Recruiting, Hiring, Onboarding, and Offboarding

PEOs can help you find and retain employees by streamlining the recruiting and hiring process and helping to create onboarding programs that offer better candidate and employee experiences. When it's time to transition employees out of the organization, a PEO can provide support with offboarding and transition management. They also typically offer HR software to support the recruitment process and manage applications.

Employee Benefits and 401(k) Administration

In addition to offering top-notch benefits, PEOs usually handle tasks like plan enrollment, claims management, and 401K administration. They may also help with Affordable Care Act paperwork, including annual employer-provided health insurance offers and coverage information returns (IRS Forms 1094-C and 1095-C) and the Form W-2 value of health insurance coverage.

Staff Training, Development, and Performance Management

Selecting a PEO can help you create a positive employee experience by providing HR management support and performance management services. Skills-based training programs and career pathing services may also be available to develop your employees as they grow with your business.

Attracting and Retaining Talent

Successful leaders understand that people are the number one priority for the success of any business, which makes developing and supporting employees a business-critical priority. In our survey, attracting and retaining employees was the top priority for 57% of business leaders, and nine in ten leaders plan to ramp up the focus on engagement and professional development in the next 12 months. A PEO can help implement tactics like pay increases, better benefits, employee well-being strategies, and expanded career development opportunities to help you attract and retain the best talent.

Workers' Compensation Administration

Workers’ compensation and risk management services help ensure that you meet state requirements, remain compliant with regulatory guidance, and remain protected from liability claims. A PEO can help protect your business and employees by developing worksite safety programs, onsite employee safety training, and claims management while supporting workers' compensation coverage. They can also help you administer the program and provide safety assistance with the backing of professional underwriters, loss control specialists, and claims managers.

Some PEOs may offer a pay-as-you-go workers' compensation option that allows you to pay premiums based on actual wages — not estimates — to help cut sizable up-front premium deposits, improve your cash flow, and reduce the risk of additional premiums due at audit.

Unemployment Insurance

Choosing a PEO means leaving federal and state unemployment tax concerns in the PEO's hands. The PEO will calculate and pay both Federal Unemployment Tax (FUTA) and State Unemployment Tax Act (SUTA) payments for you.

Regulatory Compliance

The PEO will help you understand how to  maintain compliance with applicable federal, state, and local employment laws, OSHA, industry-specific regulations, payroll taxes, and more. Their compliance professionals stay on top of changes to employment regulations, including tax reporting, unemployment insurance, workers' compensation, the Affordable Care Act (ACA), employee benefits compliance, leave, disability laws, and more.

HR Technology

PEOs often provide HR technology and self-service tools to help streamline and automate everyday tasks for managers and employees. Robust technology can also improve analytics and reporting, giving you access to meaningful workforce insights you can use to support decision-making.