3 Common Misconceptions Prospects Still Have About PEOs (and How to Address Them)

Quick look: Even as more employers recognize the value of partnering with a professional employer organization (PEO), misconceptions remain, and these myths can create hesitation among potential clients. Here’s how to address three common misunderstandings and demonstrate the strategic value a PEO can deliver.

Professional employer organizations (PEOs) are an increasingly popular solution for small and medium-sized businesses (SMBs) navigating the complexities of human resources (HR), compliance, and employee management. And the numbers speak for themselves: according to the National Association of Professional Employer Organizations (NAPEO), companies that work with a PEO grow twice as fast, experience 12% lower turnover, and are 50% less likely to go out of business compared to their peers.

However, despite these proven advantages, misconceptions about PEOs still exist and can prevent prospective clients from seeing the full value of the solution, or from exploring it at all.

As a broker, you’re uniquely positioned to educate and guide your clients through the facts. By addressing common myths head-on, you can help prospects make informed, confident decisions about partnering with a PEO. Below are three of the most frequent misconceptions, along with how you can help business leaders make informed, confident decisions about partnering with a PEO.

Misconception #1: “A PEO will take over my business”

Some business leaders mistakenly believe that partnering with a PEO means losing control of their company. They may assume the PEO will oversee hiring decisions, employee management practices, or day-to-day policies.

The truth

A PEO doesn’t take over a company, it supports it. Through a co-employment model, the PEO handles administrative and compliance-related HR functions, while the client retains full authority over operations, culture, and business strategy.

In other words, while a PEO takes care of tasks like payroll, tax filings, and benefits administration, the client continues to make all decisions that shape the business, from hiring and promotions to company culture and long-term goals.

What brokers can say

• Clarify the co-employment model: Reassure clients that they will remain in charge of their team’s day-to-day management. The PEO becomes the employer of record for certain tax and compliance purposes, but doesn’t replace leadership or ownership.
• Use relatable examples: For instance, a business might hand over payroll processing and compliance monitoring to a PEO while maintaining full control over recruitment priorities, performance management, and compensation structures.
• Highlight the PEO’s advisory role: Emphasize that while PEOs act as strategic HR partners, offering guidance and best practices, the client’s company will always make the decisions.

Misconception #2: “PEOs are only for big companies”

Another common belief is that PEOs are best suited for large organizations with complex HR systems or nationwide workforces. SMB leaders sometimes assume PEOs are too costly or sophisticated for their size, or that their smaller employee base won’t qualify for PEO services.

The truth

The opposite is true: modern PEOs are built for small and midsized employers. In fact, according to NAPEO, half of all PEO customers have between 10 and 49 employees, and 35% have fewer than 10.  Today’s PEO model is designed to give smaller organizations access to enterprise-level HR expertise, benefits, and technology that may otherwise be out of reach.

By pooling employees from multiple businesses, PEOs can negotiate competitive benefit rates and provide cost-effective access to competitive healthcare, retirement accounts, voluntary plans, and HR tools. Unlocking these Fortune 500-level perks also levels the playing field for SMBs competing for top talent.

What brokers can say

• Demonstrate scalability: Explain that PEO services are flexible and evolve with a company’s growth. A five-person startup might begin with basic HR and payroll services, then expand to include employee development or recruiting as it scales.
• Use cost-benefit comparisons: Illustrate the potential financial impact by comparing the total cost of in-house HR (salaries, benefits, etc.) with the bundled, predictable cost of a PEO solution.
• Provide industry examples: Share how PEOs serve clients across nearly every sector, whether it’s a financial technology firm seeking better benefits for its growing team, a healthcare practice navigating HIPAA compliance, or a school hoping to streamline operations and better retain talented staff.

Misconception #3: “PEOs only handle payroll and benefits”

Some business leaders view PEO solutions as purely administrative, considering them to be a way to offload payroll and benefits tasks, but little more.

The truth

PEOs do much more than handle paperwork: they act as an extension of a client’s team. In addition to managing benefits and payroll, they provide comprehensive HR support, including:

• HR consulting and strategy development
• Recruitment and onboarding assistance
• Employee training and engagement programs
• Workplace safety and workers’ compensation management
• Ongoing compliance monitoring and legislative updates

The right PEO becomes a long-term strategic partner, helping SMBs stay compliant, reduce turnover, and strengthen their company culture.

What brokers can say

• Emphasize the strategic partnership: Explain how PEOs support employers through every stage of the employee lifecycle, from hiring to retirement.
• Highlight expertise and resources: PEOs proactively keep businesses informed of new labor laws, wage changes, and best practices, helping prevent compliance errors.
• Showcase real-world impact: Share examples of PEOs helping clients improve retention, navigate complex legal changes, or access more affordable and competitive benefits.

Portraying the power of PEO

PEO awareness is growing. In 2024, 67% of decision makers knew about the solution, compared to just 45% in 2018. Despite this increasing visibility, myths persist and can keep prospects from experiencing the many ways these partnerships can enhance their businesses.

By reinforcing that PEOs support, not control, business operations, you can help prospects see the model for what it truly is: a growth accelerator and compliance safeguard.

As a broker, your ability to guide clients through these misconceptions can build trust, strengthen relationships, and ultimately drive more informed client decisions.

Why ExtensisHR stands out

PEOs have the potential to take SMBs to the next level; however, not all providers deliver the same experience.

At ExtensisHR, we offer the best of both worlds: a boutique, personalized approach to customer service and enterprise-level benefits and HR expertise.

With us, your clients will receive three layers of dedicated support: an Account Manager, an HR Business Partner, and a Payroll Specialist, all well-versed in how their business operates. Plus, worksite employees gain access to a customer service team that answers the phone in under 15 seconds.

Another thing that sets ExtensisHR apart is how we value our broker partnerships. We take a collaborative approach, aligning with your objectives, respecting your client relationships, and working as an extension of your team. At the end of the day, we want two things: to help your clients thrive and to help you strengthen and expand your book of business.

Ready to learn more about the ExtensisHR difference? Explore our PEO solution, or contact us today to start a conversation.