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What is the Difference Between PEO and Payroll Services?

As your business grows, time spent on payroll processing and administration grows right along with it. From weekly (or bi-weekly) payroll processing to payroll reporting, standard deductions, tax filing, garnishments, PTO, and much more – it can start to feel like you’re spending more hours on payroll than you are building your business. And, odds are, when you started your company, it was to follow a dream or bring a great idea to life – not to spend your days (and sometimes nights) on payroll.

When payroll and other HR administration tasks start to take over, it might be time to consider outsourcing. There are a variety of options to consider, but two of the most common are:

  • A professional employer organization (PEO)
  • A payroll service provider (PSP)

Both PEOs and payroll service providers offer small to mid-size businesses access to expertise, technology, and compliance assistance to manage payroll services – allowing you to focus your efforts and redirect critical resources to revenue-generating initiatives.

Which option is right for your business depends on the size of your company, your current human resources capabilities, and whether you need additional services beyond processing payroll. By gaining a better understanding of each service's offerings and assessing key factors, you can choose the service provider that best meets your needs and your budget.

A desk with various papers, tools, and money laid out as a business owner organizes his payroll.

What is a PEO?

A PEO is a company that provides comprehensive HR solutions to small and mid-sized businesses, including, but not limited to, payroll management. PEO services and solutions within this partnership are customized to your company’s HR needs and, in addition to payroll, can include top-tier employee benefits and a variety of other HR management offerings. With a PEO like G&A that is focused on best-in-class client service, you also get access to a team of HR experts who are dedicated to helping your business grow and succeed.

What is a payroll provider?

Payroll service providers specialize in processing payroll for businesses. These providers focus on all things payroll, including calculating employee wages, deducting taxes and benefits, issuing paychecks or direct deposits, and handling payroll-related tax filings and reporting. However, they usually do not provide other HR-related services.

When hiring a payroll service provider, you agree on a monthly fee for specified services, usually based on the number of employees. The payroll service provider typically does not engage directly with your employees unless there is a specific payroll-related matter to address. Instead, your HR professionals will liaise with the payroll service provider’s team to ensure all employee inquiries are answered.

What is the difference between a PEO and a payroll services provider?

When it comes down to a PEO vs. a payroll services provider, the choice depends on your business’s specific needs and priorities.

A PEO offers a complete range of payroll services, including tracking work hours, calculating and withholding payroll-related taxes, issuing checks, handling quarterly and annual tax filings, and more, while also providing in-depth assistance to help employees manage their payroll choices.

The main difference between a payroll service provider and a PEO, like G&A Partners, are the additional PEO options, including access to affordable, Fortune 500-level employee benefits (and benefits administration) and HR management solutions (beyond payroll), including expert support with policies and procedures, recruiting, performance management, regulations and compliance, workers’ compensation, safety and risk management, and more. In addition, you get advanced, integrated HR technology supported by a client service team. In short, a partnership with a PEO provides you with comprehensive HR services, expertise, and support – all in one place.

On the other hand, a payroll service provider focuses solely on payroll processing and related tax compliance, usually without offering additional HR services. Businesses with proven HR resources and capabilities whose primary need is payroll management may opt for a payroll service provider due to its focused expertise.

Another difference between a PEO vs. a payroll services provider is how payroll taxes are reported. When you engage a PEO, you enter into a co-employment agreement. As a co-employer for your company, the PEO will remit your payroll taxes and report all tax filings under its own employer identification number (EIN). With a payroll service provider, you retain the responsibility of remitting and reporting all payroll-related taxes and do so under your own EIN, though the provider may assist you with preparing tax forms.

To narrow down which choice works best for your company, you should consider the benefits and costs associated with a full-scale PEO vs. a payroll solutions provider. Generally, PEOs charge a percentage of total payroll (usually between 3-8 percent) or a flat, per-employee-per-year fee, while a payroll service provider usually charges a monthly payroll services fee based on the number of employees.

If you’re looking to outsource payroll and other HR tasks and responsibilities, and you would benefit from a strategic HR partner, a PEO like G&A Partners may be the best choice. However, if your main concern is efficient payroll processing with minimal HR involvement, a payroll service provider could be the right decision for your business.

Schedule a consultation with one of our HR experts today to find out if a PEO is best for your business.

Is a payroll company a PEO?

There are payroll service providers that can bundle together a range of services like payroll processing, employee benefits, tax reporting, and compliance support into one package. However, to be considered a PEO, the provider and client must enter into a co-employment agreement, in which the PEO becomes a co-employer and shares liability with the client for employment-related matters.

While some payroll service providers can offer other services, most payroll service providers focus solely on payroll solutions. Before making a decision, it’s important to research each service provider's offerings, assess key factors such as company size and HR capabilities, and consider costs, so you can find the partner that best fits your business's needs.

How G&A Can Help

G&A Partners offers access to HR experts with years of experience helping businesses develop their employees, improve their workplace cultures, implement new HR processes and procedures, and more. Schedule a consultation with one of our trusted business advisors to learn more.