What Is a PEO & Should Your Company Switch to One?

As your company grows, payroll, HR, and compliance tend to pile up on your desk. Suddenly you’re hearing terms like “PEO,” “co-employment,” and “employer of record” and wondering if you’re supposed to switch to something new just to keep up.

If that sounds familiar, you’re not alone. In this article, we’ll explain what a PEO is, how it works, how it compares to a payroll provider like Horizon Payroll, and how to decide which route actually fits your business instead of just adding more complexity.

First Things First – What Is a PEO?

PEO stands for Professional Employer Organization. In simple terms, a PEO is a third-party company that partners with your business to handle HR, payroll, benefits, and some compliance responsibilities under a co-employment model.

You still run your business. Your employees still come to your workplace (or sign in remotely) and take direction from your managers. But on paper, the PEO becomes the “employer of record” for things like payroll taxes and benefits.

What’s the main difference between a PEO and a payroll company?
A PEO uses a co-employment model and typically bundles HR, payroll, benefits, and compliance. A payroll company focuses on payroll and tax filing, often with additional tools and HR support, while you remain the sole employer of record.

How co-employment actually works

Under a co-employment arrangement, you and the PEO share responsibilities:

• You, as the business owner, control the day-to-day work: hiring decisions, schedules, job duties, performance management, culture, and strategy.

• The PEO becomes the employer of record for tax and benefits purposes. They file payroll taxes under their FEIN, help administer benefits, and support HR policies and compliance.

You don’t hand over ownership of your company. Instead, you share some employer responsibilities with the PEO under a formal agreement. That structure is part of what makes PEOs attractive to some companies—and confusing to others.

What Services Does A PEO Offer

Think of it as outsourcing a large chunk of your HR and payroll function to one provider. Most PEOs offer a bundled package that can include:

• Payroll processing and payroll tax filing
• HR administration, policies, and employee handbooks
• Access to health insurance and other employee benefits
• Workers’ compensation programs and risk management support
• Help with HR compliance, including wage-and-hour rules and employment laws
• Support with onboarding, terminations, and some employee relations issues

How a PEO Is Different from a Payroll Provider

A PEO typically offers a broad bundle: HR, payroll, benefits, workers’ comp, and compliance under co-employment. A dedicated payroll provider, like Horizon Payroll, focuses first on accurate, reliable payroll and tax filing. Around that, we can layer tools and services like timekeeping, HR support, and integrations—but you remain the sole employer of record. Both models help you with payroll. The difference is how much control you keep and how many functions you’re handing over.

Control and decision-making

For some businesses, that extra structure feels like support. For others, it feels restrictive. With a payroll provider:

• You set your policies, pay practices, and procedures.

• You choose your benefits strategy and brokers.

• You decide how HR is structured internally.

With a PEO:

• The PEO may require you to follow certain standardized policies.

• Some decisions, especially related to benefits and HR procedures, are influenced or governed by the PEO’s rules.

• The co-employment structure means more shared decision-making, particularly around compliance and risk.

Employee experience

From an employee’s point of view, PEOs and payroll providers can look a bit different:

• With a PEO, employees might see the PEO’s name on pay stubs or tax forms, and they may enroll in benefits through the PEO’s platform.

• With a payroll provider, employees still see your company as their direct employer, and they access paystubs and time records through your chosen systems.

Horizon Payroll vs. a PEO: Which Approach Fits You?

What Horizon Payroll offers instead of co-employment

At Horizon Payroll, we don’t use a co-employment model. Instead, we partner with you while you stay firmly in the driver’s seat.

Our services typically include:

• Full-service payroll and tax filing

• Time and attendance solutions

• HR support, including policies and handbook help where needed

• Reporting and integrations that give you insight into labor costs, scheduling, and more

You remain the sole employer of record. We provide tools, expertise, and support behind the scenes.

Advantages of partnering with a payroll provider like Horizon

Clients often choose us over a PEO because:

• They keep full control over HR, culture, and policies.

• They can customize benefits and relationships with other vendors.

• They get responsive, personal support instead of feeling like one account among thousands.

• They can tailor services to their needs instead of adopting a one-size-fits-all program.

We support your strategy rather than replacing it.

When a PEO May Not Be the Best Fit

You want to keep HR in-house but streamline payroll

If you already have an HR leader or team—or you plan to build one—handing HR to a PEO may not make sense. In that case, you might simply need:

• Better payroll processing

• Integrated timekeeping

• Practical HR tools and guidance

That’s where a payroll provider like Horizon fits well: we support your team rather than replace it.

You value customization and direct control

Some organizations want the freedom to:

• Write unique policies that match their culture

• Work directly with benefits brokers or carriers of their choice

• Build custom workflows and processes in-house

If that sounds like your company, a more flexible payroll and HR support model tends to be a better match than a standardized PEO bundle.

Cost and complexity outweigh the value

If your risk profile is moderate, your headcount is steady, and your HR needs are manageable with some outside support, a full PEO solution may be more than you truly need.

In that situation, you might get better value from a focused payroll provider with add-on HR services, instead of paying for the full PEO structure.

Key Questions to Ask Before Switching to a PEO

Strategic questions

• What specific problems are we trying to solve?

• Are we looking for full HR outsourcing, or do we just need better systems and expert backup?

• How will our culture and leadership style mesh with a co-employment model?

Financial questions

• What is the real total cost per year, including all fees and add-ons?

• How does that compare to a payroll provider plus HR and benefits support from other partners?

• Will benefits savings, if any, truly offset the fees?

Employee impact questions

• How will employees experience the change in terms of pay stubs, benefits enrollment, and communication?

• Will they see another company’s name on forms and wonder what it means?

• How will we explain co-employment to the team so it feels clear and not alarming?

Operational questions

• How quickly can we get help when we have a question or a problem?

• How easy is it to access reports, data, and payroll information?

• If we outgrow the PEO, what does the exit process look like?

Talk Through Your Options with Horizon Payroll

If you’re weighing a PEO versus a payroll provider, you don’t have to sort it out alone.

We regularly talk with business owners and HR leaders who are:

• Considering a PEO for the first time

• Wondering if they should leave their current PEO

• Trying to understand if a focused payroll partnership would be enough support

Our goal is simple: help you understand your options clearly so you can choose what fits your company best—whether that’s a PEO, Horizon Payroll, or a combination of partners.

Ready to talk it through?
Reach out to Horizon Payroll to schedule a short conversation or request a payroll review. We’ll walk through your current setup, your priorities, and what different models would actually look like for your team.