Indianapolis CPA Explains: The Pros And Cons Of Using A Professional Employer Organization

There is a lot to consider when hiring an employee for any company.  And whether it’s for a full or part-time position, the time and money spent recruiting, interviewing, training, adhering to payroll laws, and managing benefits can be a very heavy burden for a small business.

So instead of going through the trouble of dealing with this all in-house, many business owners have turned to Professional Employer Organizations (PEOs) to meet these needs.

PEO’s relieve business owners from the liability and time pressure issues that are related to having employees.  And this means that the employees may report to the client for their daily tasks, but they claim the PEO as the employer on their tax forms.

The consensus that has been found across most organizations is that the cost/benefit analysis usually supports the decision to use this type of arrangement for a company with up to 50 employees.  And then after that, the company should have enough internally to take over and handle everything even more efficiently.

But otherwise, there are a few basic pros and cons to consider about using a PEO, and they are as follows:


  • Better health insurance and benefits choices (such as being able to offer a 401k plan)
  • Reduction in benefit related costs
  • Will have assistance with issues concerning employment law
  • Will be provided with forms and guidelines for handling the most common employee situations
  • Many potential liabilities removed from the small business owner



  • Still have to do quite a bit of the paperwork in-house (similar to dealing with benefits company)
  • Must be approved to join a PEO, which doesn’t always happen
  • The business gives up control of the payroll process
  • Some companies do not give you a breakdown for overhead costs between taxes, insurance, administration fees, etc.
  • The benefit package may not flexible.  You’ll probably have to accept what they offer without customization
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