PEO or Payroll Company: Which One Do You Really Need?

When your business needs payroll, HR, and benefits, you may consider a well-known Professional Employer Organization (PEO) like ADP or Paychex. But for some small businesses, PEOs include features they don’t need or rarely use. Many payroll providers cover the basics of payroll, HR, and benefits on a pay-per-feature level.

Today, PEOs and payroll companies are much more similar than they were even a few years ago. So, which is right for your business? Let’s talk about the differences.

CSI Accounting & Payroll has served small businesses for 60 years, offering scalable payroll, HR, insurance, and retirement plans. We often see prospective clients who are using a PEO but would be a better match for a payroll provider like us. They ask us:

• What is a Professional Employer Organization (PEO), and who’s a good fit for one?
• What is a payroll company, and who’s a good fit for one?
• I still can’t decide between a PEO and a payroll company. What should I do?

About PEOs

Professional Employer Organizations (PEOs) are the big dogs of the payroll, HR, and benefits world. In fact, the biggest names in payroll are PEOs: ADP and Paychex.

Both ADP and Paychex offer PEO plans that are seen as “complete” solutions and go way beyond their standard payroll SaaS (software as a service).

These plans make sense for businesses that:

• Don’t employ HR staff but have high HR compliance needs.
• Want to offer competitive benefits, including large-group health insurance.
• Want to outsource most employment-related responsibilities.
• Are not price-sensitive, or don’t mind calling for an estimate.

Compared to payroll providers, PEOs give you more, but they may be at a higher cost. Neither ADP nor Paychex mention anything about pricing on the main pages of their websites. You need to dig for articles (like this) just to learn that “PEO administrative fees are structured as a percentage of payroll (typically 2% to 12%) or as a per-employee fee (about $40 to $160 per employee per month).”

Regardless, PEOs could be worth it if you use most of the features, and they’re necessary if you require the two features that payroll companies don’t offer: co-employment and pooled benefits.

About Payroll Companies

Payroll companies often provide full payroll packages, plus some basic extras. For example, CSI Accounting & Payroll offers add-on HR, insurance, and retirement plans that are geared toward small businesses. With our software, iSolved, the integration of these features is effortless.

Some features are not as advanced as those of a PEO, but for many small businesses, they’re a perfect match.

Payroll companies with these add-on secondary services make sense for businesses that:

• Don’t employ HR staff and have standard HR compliance needs.
• Want to offer competitive benefits like employee retirement plans but don’t need large-group health insurance.
• Are willing to handle most employment-related responsibilities internally.
• Want hands-on payroll support from a dedicated specialist.
• Want a cost estimate before talking to a consultant.

Compared to PEOs, payroll companies may not go quite as far with benefits, but since they’re often pay-per-feature, you end up only paying for what you need. When we get new clients from PEOs, they tell us that they switched due to the PEO’s poor customer service, high staff turnover, and onboarding challenges. One of the reasons they choose CSI is to work with a dedicated payroll specialist who gets to know their business.

For the typical small or midsized business, payroll companies are the best option.

Making the Decision

Still not sure which option your business needs? Ask yourself the following questions:

• Do I need co-employment or pooled benefits? If yes, then you need to go with a PEO. Payroll companies don’t do this.
• Does my industry require more HR compliance than the average industry? If yes, then it’s a safe bet to go with a PEO… but not required. Some payroll companies will offer higher levels of HR support.
• Will I reach out to a provider if I don't know the cost? If not, or if you’re concerned about breaking your budget, then a payroll company is more likely your match. The big-name PEOs don’t clearly mention pricing on their websites.

Still not sure? Talk to an expert at CSI Accounting & Payroll. We’re happy to talk about your situation and what pricing may look like for you. If we’re not a match, we’ll send you in the right direction. No obligation!

Only Pay for What You Need!

Now that you know what a Professional Employer Organization (PEO) is, what a payroll company is, and how to choose the right one, are you ready to check out CSI’s payroll service?

To see if we can be a good fit for your business, click the button below for a free consultation:

Not ready to talk? That’s okay! First, learn more about our pricing.