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PEO for Small Businesses

Running a small business can be challenging. Resources are tight, growth requires hard work, and business leaders can get overwhelmed if they don’t have the help they need. If this sounds familiar, outsourcing supporting functions so you can focus more on business activities could be exactly what your organization needs.

HR is one of these functions, but not every outsourcing option is the same. Professional Employer Organizations (PEOs) are outsourcing firms that allow small- and medium-sized businesses to outsource most of their HR responsibilities. If you own or manage a small business, working with a PEO could be beneficial to you.

Why work with a PEO?

Research has proven that partnering with a PEO can deliver a strong ROI for small businesses. Firstly, they can support your growth. Specifically, small businesses that use a PEO grow 7-9% faster than competitors who don’t. Also, a PEO can help you better manage business risk. According to a study from the National Association of Professional Employer Organizations (NAPEO), employers partnering with a PEO are 50% less likely to go out of business.

Working with a PEO can reduce your HR-related costs and improve your performance. In fact, using a PEO reduces HR admin spending by 27% on average. A PEO can also help your business reduce employee turnover by 10-14%. A PEO partnership provides access to Fortune 500-level benefit plans, next-gen technology solutions, and higher-quality HR practices, which in turn, helps to recruit and retain top talent.

What can a PEO offer?

PEOs deliver cost-effective, outsourced services for HR, payroll, benefits, risk management, and more. Here are the main areas where a PEO can support your small business.

Employee benefits

Small businesses may struggle with offering competitive employee benefits. Their size can hinder them from providing benefits that rival their larger competitors. Even if they do, it often comes with a hefty price. However, a PEO partnership can solve this problem.

PEOs work with various employers, which means that they typically serve a large number of employees. This gives them group bargaining power to access sophisticated benefits at competitive prices for their clients’ using economies of scale. If you employ less than 150 employees, a PEO may be the best way to access Fortune 500-level benefits for your workforce to improve attraction and retention.

Technology is another employee benefit-related aspect where a PEO could help. While applications have become more accessible, high-end technology is still costly and mostly used by large businesses. However, a PEO could provide their small business clients with access to state-of-the-art benefits systems, while also implementing and maintaining the platform for you.


Every employer knows that payroll can be an admin nightmare. While paying your workforce sounds simple, there is a wide array of ever-changing federal, state, and local laws and regulations to keep in mind. Also, stakes are high since payroll problems could cause employee dissatisfaction, reputational damage, and fines.

Instead of letting these issues keep you awake at night, you could partner with a PEO, outsource these responsibilities, and focus more on business strategy. A PEO can help you put the right technology and processes in place to track required data, run reports, and manage payroll. They can also process payroll on your behalf and file all necessary payroll taxes.

Apart from achieving time efficiencies, this can also give you peace of mind that you will stay compliant and avoid fines.

Risk and compliance

HR comes with heavy compliance requirements, which can be challenging for small businesses that don’t have the luxury of employing large HR departments. Staying current with these needs, updating your policies and practices accordingly, and managing HR risks can be stressful, time-consuming, and effort intensive. If this sounds familiar, a PEO can help.

Partnering with a PEO means you don’t have to worry about HR compliance anymore. From Workers’ Compensation coverage to payroll compliance to employee relations, they have the expertise to support you. Not only can the experts at your PEO partner provide compliance-related advice, but they can also manage and resolve cases on your behalf.

Employment relations

Employment relations are a wide and deep field requiring strong expertise in managing challenging people cases. From grievances when an employee feels they have been treated unfairly to disciplinaries when someone violated company rules to termination in cases of gross misconduct, small employers have a lot to deal with.

A PEO partner can support you in creating and maintaining HR policies and processes that are in line with legal requirements and best practices. They can also provide expertise on a case-by-case basis, so that your HR team can make informed decisions.

Learning & Development

Learning & Development (L&D) has become increasingly important, as top talent values career growth. L&D solutions have also become more sophisticated to meet this demand, using technology to provide a better learning experience. However, small businesses are often unable to access quality L&D due to their size and limited resources.

If you are looking to attract and retain top talent, offering strong L&D is a must. Working with a PEO can help your small business access the latest solutions, implement systems, and offer fit-for-purpose solutions to your talent. Not only will you increase employee satisfaction, but also improve the capability of your workforce, which can in turn increase their performance further.


Recruitment can make or break your business. It’s no secret that people are your most important asset, but finding, attracting, and hiring the right talent is not an easy feat. Small businesses may need to hire aggressively during growth phases, which can make even the best in-house recruitment team struggle.

While each PEO has their own scope of services, only some provide full-service, comprehensive recruitment solutions. They can help create a recruitment strategy aligned with your business goals and provide the support you need to source and attract top. They can also assist throughout the hiring process—from managing your tech to taking care of admin work to assessing applicants. Finally, a PEO can help you onboard your new hires and get them ready to hit the ground running.

HR technology

Technology can be a game-changer in the HR world. From automating repetitive tasks so that your employees can focus on more meaningful work, to reporting on relevant data to enable leaders to make informed decisions, there are many reasons to utilize HR tech.

However, small businesses may not have the luxury to build a sophisticated HR technology function that maximizes productivity, streamlines business efficiencies, and improves employee engagement.

If you’re struggling to manage those crucial activities, a PEO can help. A PEO provides access to technology solutions, platforms, and mobile applications that:

  • Streamline tasks like onboarding, open enrollment, and recruiting
  • Increase employee engagement through self-service options
  • Reduce the potential of compliance errors
  • Improves collaboration throughout a distributed workforce
  • Enhances learning, development, and training capabilities
  • Allows for more informed decisions by using data analytics and reporting

HR strategy

Your HR strategy is a crucial element of your overall business strategy. It should be linked to your short-term goals and long-term aspirations, enabling you to build and retain a workforce that will help you succeed. However, setting and managing a HR roadmap can be hard, especially when you have many other departments to consider.

A PEO can partner with your business leaders and HR team to help translate your high-level business goals to relevant HR initiatives. Then, they can help you refine your strategy along the way and evaluate success. Of course, you maintain control over the decision-making – a PEO is only there to help you along the way.

How to select a PEO

There are many HR outsourcing options available. While PEOs are generally targeted to smaller businesses, each provider is different. Here are some criteria to consider when evaluating a PEO.


While PEO accreditations are not a legal requirement, we suggest looking for accredited providers, as they often meet high-quality standards. Specifically, it is best practice to select a PEO that is accredited by the Employer Services Assurance Corporation (ESAC) and designated as a Certified Professional Employer Organization (CPEO) by the IRS.

Similar clients and industry experience

We recommend partnering with a PEO who specializes in working with smaller businesses in your particular industry. Small businesses tend to have vastly different needs and goals to larger ones, and hiring a PEO that has experience with similar businesses can help.

While some HR elements can be industry-agnostic, this is not always the case. A partner who understands your business and industry is likely to be more helpful than someone without relevant experience. Thus, we recommend choosing a partner who has worked with similar businesses to yours. For example, ExtensisHR specializes in serving white-collar clients in 18 specific industries, with less than 150 employees.

Experience in your geographic region

While most best practices can be applied across geographies, sometimes there are crucial local nuances. For example, compliance issues are dependent on local laws and regulations, which can vary from country to country or even from state to state. Therefore, we suggest looking for a local partner who has experience in working with businesses that operate in your core regions.

Track record

Finally, don’t forget to ensure your PEO has a strong track record of success. To check this, we suggest requesting client testimonials, case studies, and reviews in order to minimize risk.

Learn more about how partnering with a PEO can help your small business. Our expert HR teams are here to help.


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