As organizations grow, managing HR gets harder because of continual regulatory updates, rising benefit expenses, and higher employee expectations. That’s why more businesses are using PEOs (Professional Employer Organizations) and HROs (Human Resource Outsourcing providers) to handle their HR needs. Both are helpful, but they do things differently and meet distinct requirements.
By 2025, 15% of companies with 10 to 99 employees will utilize PEOs, which is almost twice as many as in 2008. This shows that strategic HR outsourcing is becoming a competitive edge. The decision between a PEO and an HRO comes down to how much control you want to keep, how much liability you want to shift, and if you need full-service HR or a more flexible, selective approach.
Both types of HR outsourcing help companies handle HR tasks more efficiently, but they do it in very different ways that have an impact on everything from liability to cost to the level of service.
The market for outsourced employee benefits has grown to about $254 billion for PEOs and $10.9 billion for HROs in the US. These are basic parts of business that 173,000 organizations and 4 million workers use every day.
A Professional Employer Organization (PEO) is a full-service HR outsourcing company that uses a co-employment model. This implies that for tax and benefits reasons, the PEO is the employer of record, but you still have full control over how the firm runs and how employees are managed.
PEO services often include:
A PEO is particularly valuable for small and mid-sized companies because:
Best for: Small to medium-sized enterprises that want to gain enterprise-level benefits without having to develop their own HR department.
A Human Resource Outsourcing (HRO) provider is a third-party HR firm that doesn’t hire employees directly. You just hire outside support for the HR tasks you need help with. You still have complete control and responsibility over payroll, compliance, and employee management.
Businesses can choose from:
An HRO is ideal for mid-sized and large companies because:
Best for: Businesses that have an HR team that needs help with certain tasks like payroll, benefits administration, hiring, or training.
Here’s how these HR outsourcing models compare across critical factors:
| Factor | PEO | HRO |
| Relationship Structure | Co-employment arrangement | External vendor contract |
| Liability Sharing | Shares certain employment liabilities | No liability sharing |
| Service Model | Comprehensive bundled services | A la carte or bundled options |
| Benefits Access | Fortune 500-level at group rates | Competitive but limited bargaining power |
| Cost Structure | 2-12% of payroll or per-employee fee | Variable based on services selected |
| Best For | Small businesses without HR staff | Companies with existing HR departments |
| Control Level | Shared HR responsibility | Full control, vendor support |
| Scalability | Built for growth | Flexible but limited |
Most of the time, PEO services cost between 2% and 12% of total payroll, or a flat price of $100 to $200 per employee per month. This may seem like a lot of money, but think about what you’re getting.
Research from 2025 reveals that PEO clients save an average of $1,775 per employee each year by lowering benefits expenditures, avoiding compliance penalties, and not having to pay for HR hiring costs. That’s more than $44,000 a year in savings for a company with 25 employees, even after paying PEO costs.
Depending on the services you choose, HRO prices can be very different. For basic services, you might have to spend $40 to $180 a month plus costs for each employee. The flexibility sounds great, but here’s what most business owners don’t get: you still need someone inside the company to handle what you’re not outsourcing.
If you utilize an HRO to handle benefits administration in-house, someone on your team spends 10 to 15 hours a month enrolling employees, addressing their inquiries, and dealing with carriers. That’s $500 to $750 a month in hidden charges that don’t show up on your HRO bill.
If your organization has fewer than 100 employees and doesn’t have its own HR team, PEO services are the best choice. A PEO can change the way you do business if your office manager is also in charge of payroll, your co-founder is answering concerns about benefits, and no one knows what compliance rules apply to your case.
The co-employment concept is especially good for businesses that are growing. When you go from 15 to 50 people, your HR infrastructure needs to grow with you. To do that internally, you need to hire HR people, set up systems, and gain knowledge. With PEO services, you can get to all of that right away.
HRO solutions are suitable for big firms that already have HR departments and need specific help. Your internal team may be able to perform most tasks well, but they could require support with paying payroll taxes in more than one state. Or maybe you want help with hiring without having to give up everything else.
Companies that wish to keep control over some operations, like the flexibility that HROs offer when it comes to outsourcing HR. Some businesses may rather keep sensitive employee information in-house, handle terminations in-house, or keep their current benefits broker partnerships.
Companies with more than 100 employees usually have the money to hire good HR teams. They employ HROs to add to their capabilities instead of replacing their whole HR department.
In the end, the choice between an HRO and a PEO comes down to what you really need, how much help you want as you grow, and how much HR you already have. A PEO is generally the best choice if you want to make HR easier, offer better benefits, and lower the risk of not following the rules. An HRO may be a better option for you if you want focused, modular aid while still being in charge of your own legal matters. No matter what, you should look at the ideas, try out the technology, and ask for measurable results for your clients before making a choice.
OEM America can help you decrease costs, boost production, find hidden costs, or just get leaner and more efficient. Set up a consultation with an expert and get up to four hours of help, plus a free study that shows you how to save $1,000 per employee (terms apply). Want to know more? You can reach us at 860.528.5555 or by filling out our contact form. We’ll get back to you straight away. OEM America is a member of NAPEO and has been in business for 30 years. It has helped firms choose the correct HR outsourcing strategy with confidence.
A: PEO services are typically bundled under co-employment and include payroll, benefits, workers’ comp, and compliance support. HR outsourcing is an a la carte model where you pick which tasks to outsource while remaining the employer of record.
A: Many companies see administrative savings and lower benefits costs through a PEO’s purchasing power. Industry-level analysis shows meaningful per-employee savings when PEOs are used.
A: Yes — one of the strengths of peo services is multi-state payroll and compliance administration, which reduces risk for remote and distributed teams.
A: Yes, but plan. Exiting a PEO requires careful coordination for benefits, payroll, and any workers’ comp programs. Ask providers for their transition terms before signing.