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What Are the Three Types of PEOs?

No two professional employer organizations (PEOs) are exactly alike. From the services provided to the pricing structure, types of benefits offered, and more, each PEO has their own strengths and their own way of supporting small and mid-sized businesses.

So, if you’re considering a PEO to provide HR administration for your business, how do you know which one is the best match for you? In this article, we’ll discuss whether there are different types of PEOs, how a PEO compares to other common HR outsourcing options, and finally, what makes a good PEO partner.

A woman stands with one hand on her hips in front of 3 white doors, making a choice between them.

What are the three types of PEOs?

The short answer is: there aren’t necessarily different types of PEOs. What differentiates PEOs from one another is the models and services they offer. But most are founded on the same premise – to provide administrative support (HR management, payroll, benefits, and compliance assistance, for example) through a co-employment agreement.

When you partner with a PEO, they become the employer of record for your organization. This enables the PEO to perform certain HR tasks on your behalf. In co-employment, you continue to manage your employees’ day-to-day responsibilities, make all business decisions, and manage operations. The PEO takes HR administration off your plate, so you can focus on growing your business.

Some PEOs such as G&A Partners are focused on providing high-touch and high-tech strategic services. In addition to handling HR tasks, they serve as an experienced advisor, ready to provide insights that can help you elevate your employee experience, improve retention, and ultimately, achieve long-term growth.

Other PEOs are focused on providing integrated technology to streamline HR tasks and help with administrative duties, but in some cases, they lack responsive service or strategic guidance.

While there may not be specific PEO types, there are two commonly offered professional employer organization models:

  • A classic PEO model involves a company entering a co-employment agreement with the PEO that offers a full-service program. This means you are receiving all services offered by the PEO. This model is ideal for dynamic, faster-growth companies – whether small, mid-sized, or large – that are seeking more comprehensive and strategic HR services to support their current growth objectives.
  • A PEO with carve-outs model is an more flexible approach. In this model, you keep existing arrangements in place – such as workers’ compensation or benefits acquired through an insurance broker – and you only opt in to the specific services you need through a PEO, such as payroll processing and benefits administration.

Employee leasing is another term that is often incorrectly associated with PEOs. This can be traced back to the industry’s roots when the terms “co-employment” and “employee leasing” were used interchangeably. However, as the PEO industry has evolved – and awareness of the value PEOs offer has grown – co-employment has emerged as the preferred term. So, when evaluating a PEO vs. employee leasing, keep in mind that employee leasing is a service provided by staffing firms, not PEOs.

How do you tell if a company is a PEO?

Type “PEO” in a search engine, and chances are you’ll find all sorts of HR-related companies that use the term to describe their services. In fact, “PEO” is often used broadly by employers of record (EORs) and staffing agencies.

So how can you be sure a company is a PEO? You can start by checking whether they’re certified by the IRS. A CPEO (certified professional employer organization) has met the requirements defined by the IRS to be a PEO.

It’s also a good idea to check references and ask companies you are considering if they are a member of NAPEO (National Association of Professional Employer Organizations) and/or if they have additional accreditations, industry awards, or accolades.

What is the difference between a PEO and ASO?

Another common HR outsourcing model is an ASO or administrative services organization, which is ideal for companies that are seeking some HR services, but that don’t need a PEO’s full-service solution.

Let’s look at the key differences between a PEO vs. ASO:

  • Co-employment is required when working with a PEO, but it is not part of an ASO contract.
  • An ASO allows you to choose from a few HR-related services, such as payroll and benefits administration, while a PEO is a comprehensive solution that offers some customization.
  • You’re more likely to have a dedicated HR person on staff at your organization if you’re using an ASO. With a PEO, some companies choose to designate an individual who is a liaison between the PEO and your employees, but having a dedicated HR person is not required.

When weighing whether to choose a PEO vs. ASO, budget, expectations, and your company’s unique needs are all important. These questions can also help you determine which is best:

  • Is co-employment right for your business?
    Co-employment with a PEO allows you to share some of the risks associated with running a business, while still retaining full control of your company and employees.
  • Are you curious about outsourcing your HR?
    Working with an ASO is a good place to start if you’re considering outsourcing your HR, but you aren’t ready for a PEO’s full-service approach.
  • Does your business utilize several technology systems that don’t talk to one another?
    A single-source data system with an ASO or PEO can save time and avoid potential data entry errors.
  • Are your current benefits working for you and your employees?
    An ASO allows you to maintain your benefits, though they can handle administration for you. Some PEOs, such as G&A, will also provide benefits administration on carve-outs. However, if you’re looking for new benefits options, partnering with a PEO will open up access to Fortune 500-level employee benefits, at prices you and your employees can afford.

What is the difference between PEO and HRO?

When you hire a company to handle one or more of your HR tasks, you’ve engaged with an HR outsourcing (HRO) provider. The main difference between PEO vs. HRO is that a PEO provides a full-service, comprehensive HR solution, including HR management, payroll, benefits administration, workers’ compensation, safety services, compliance assistance, and more. With an HRO provider (such as a payroll provider) you’re likely only getting one or a few services.

So, which is right for your business? That comes down to your needs. If you’re seeking comprehensive benefits at a better price, or if you need guidance to help stay on top of ever-changing (and confusing) workplace requirements, a PEO is likely your best bet. But if your HR team is focused on strategic initiatives and you want someone else to handle payroll, a payroll-only provider may be a good fit.

When choosing between a PEO vs. HRO, consider your current needs, but also assess your long-term needs. An investment in a comprehensive solution now may lead to greater gains in the future.

What makes a good PEO?

Finding the best PEO partner for your small business or mid-sized company starts with identifying an organization that can meet your specific needs. Most PEOs offer similar services, such as daily HR administration, hire-to-retire technology, master insurance plans, and assistance with compliance.

But there are key factors that can differentiate one PEO from the next, including:

  • Customer service: Does the PEO have a designated team or person who will get to know your business and be available to answer your questions? How quickly do they respond?
  • HR expertise: One advantage of a good PEO is that your company will benefit from their experts’ comprehensive HR knowledge and years of experience within the HR industry.
  • Certifications: Is the PEO certified with the IRS as a CPEO?
  • Benefits plans and carriers: With a PEO, benefits are often comparable to Fortune 500-level companies. Ask what carriers the PEO offers and which types of plans are available. What is the pricing for each?
  • Reputation: How long has the PEO been operating and what is the organization’s reputation?
  • Services: Are services bundled or are they listed separately, allowing you to see the specific services provided?
  • Cost: Does the PEO charge a percentage of payroll or a flat fee per employee?

When evaluating a PEO, the types of services you need, the level of support you’re seeking, and transparent pricing should play an important role in your final decision.

Why G&A

In more ways than one, a PEO benefits you and your business. From gaining back more time to focus on revenue-generating initiatives, to helping you avoid noncompliance and provide the best benefits for your employees – a PEO is more than an HR outsourcing solution – it’s a strategic partner than can position you and your company to achieve a new level of success.

At G&A Partners, we pride ourselves on providing world-class HR services, best-in-class support, and HR expertise that will elevate your employee experience. Schedule a consultation with one of our HR experts to get started.