Hiring a Professional Employer Organization (PEO) sounds easy. They take care of payroll, benefits, and HR administration so you can focus on growing your business.
Research has indicated that nearly 35 percent of companies that partner with professional employer organizations (PEOs) end up terminating their relationships in the first two years. That’s because businesses see the relationship as a transaction, not a partnership.
Often, these myths lead to uninformed decisions by businesses, from thinking they’ll lose control of their company to believing PEOs are only for large corporations.
Let’s get straight to the point and discuss the common myths of Professional Employer Organizations that every employer should know.
Many misconceptions still exist in the PEO industry from the early days of co-employment when businesses were just learning about it. Others are born from mistaking a PEO for staffing agencies, payroll providers, or conventional HR consultants.
Today’s Professional Employer Organizations look very different.
Today’s PEOs are a complete solution that includes payroll, employee benefits, HR compliance and risk management, recruiting support, workers’ compensation administration, and HR technology. They are a strategic administrative partner that saves you time on paperwork and helps you grow your business.
According to the National Association of Professional Employer Organizations (NAPEO), more than 230,000 U.S. businesses now partner with a PEO – about 15% of employers with between 10 and 499 employees. The 2026 NAPEO survey also revealed that 87% of companies not currently working with a PEO are actively considering one, as economic uncertainty and HR complexity continue to increase.
The impression is that when you sign up with a PEO, someone else starts making decisions about hiring, firing, promotions, salaries, or company policies.
A PEO performs administrative employer functions including payroll processing, tax filings, benefits administration, and some compliance functions. But you have complete control over your company.
You still decide:
A PEO is your HR department, not your stand-in leadership team. In many cases, owners actually feel more in control because they are no longer buried in administrative work.
The figures tell a different story. More than 90% of companies that use PEO services have fewer than 100 employees, according to NAPEO. Many clients have between 10 and 50 employees, making small businesses the industry’s primary customer.
Smaller organizations often benefit the most because they typically don’t have:
A Professional Employer Organization gives growing companies access to expertise that would otherwise be too expensive to build internally.
Payroll is only one piece of the puzzle.
A full-service PEO typically provides:
Instead of juggling multiple vendors, businesses gain one integrated HR solution. This is one of the biggest Professional Employer Organization facts many business owners discover only after researching PEOs more closely.
At first glance, paying another company to manage HR sounds like an added expense. However, smart business owners look beyond the monthly invoice.
Research from McBassi & Company, frequently cited by NAPEO, found companies using a PEO achieve an average return on investment of approximately 27%.
Those savings come from several areas:
When founders calculate the hidden cost of handling HR internally, many realize they’re already spending far more than they expected.
Business owners often worry employees will become confused or uncomfortable with co-employment.
In reality, employees usually notice very little difference.
They still report to the same managers.
They work for the same company.
Their daily responsibilities remain the same.
What often does improve is their overall experience.
Through group purchasing power, PEOs frequently provide access to stronger health insurance, dental coverage, retirement plans, employee assistance programs, and additional voluntary benefits that smaller businesses couldn’t negotiate independently.
That improvement often helps with recruitment and retention.
NAPEO research has shown businesses using PEOs experience approximately 12% lower employee turnover than similar businesses managing HR independently.
Some business owners think that hiring a PEO means they don’t need their own internal HR staff.
Rather than replacing HR professionals, a PEO removes repetitive administrative work so internal HR can focus on higher-value initiatives.
Instead of spending hours processing payroll or researching changing labor regulations, HR leaders can invest their time in:
The relationship works best when internal HR and the PEO complement one another.
The word “co-employment” often creates unnecessary concern. Some business owners believe that sharing employer responsibilities leaves them more liable legally.
A PEO has experts who keep up-to-date with changing employment laws, tax laws, payroll, and workplace compliance requirements.
While your business always retains responsibility for operating legally, partnering with experienced HR professionals significantly reduces the chance of costly administrative mistakes.
This is especially helpful for companies that hire remote employees in multiple states with vastly different employment laws.
Another common concern is that moving payroll, benefits, and HR systems will create chaos.
Fortunately, experienced PEO providers have refined this process over decades.
Most provide dedicated implementation specialists who help coordinate:
A well-managed transition often happens with minimal disruption to employees.
Not all PEOs offer the same level of expertise, technology, customer service, or industry knowledge.
Some specialize in healthcare.
Others focus on manufacturing, construction, hospitality, or professional services.
Some are Certified Professional Employer Organizations (CPEOs), while others are not.
Before choosing a provider, compare:
Choosing the right partner matters just as much as choosing to work with a PEO in the first place.
Most concerns come from misunderstanding how co-employment actually works.
Companies using Professional Employer Organizations consistently report:
As workforce regulations keep changing in 2026 and hiring becomes increasingly competitive, having experienced HR support can provide a significant advantage.
If you already have a large HR department, sophisticated payroll systems, and dedicated compliance specialists, it may still make sense to manage everything internally.
However, many growing businesses reach a point where administrative work begins slowing down growth. That’s where PEO partnerships become valuable.
For over 25 years, OEM America has been helping small and mid-sized businesses simplify HR, strengthen compliance, and build workplaces where great people want to work and stay.
If you’re looking at a Professional Employer Organization, we’d be happy to help you understand your options and determine if a PEO is right for your business goals.
A: The HR and PEO partnership structure, when executed well, clearly defines ownership of responsibilities. The PEO typically handles payroll processing, tax compliance, benefits administration, and day-to-day HR administration. Your business participates in strategic HR decisions, culture development, senior leadership performance management, and workforce planning. But you have to adapt this framework to your situation.
A: A review identifies three major errors. First, the notion of the professional employer organization as plug-and-play HR replacement as opposed to active engagement and integration. Second, picking providers based on cost rather than cultural fit, functional capabilities, and potential for true partnership. Third, not planning for how the relationship needs to evolve as the company scales, grows into new markets, or changes workforce composition.
A: Industry research indicates that some 35 percent of companies terminate their professional employer organization relationships within two years, often because the relationship was transactional and did not evolve into a true partnership.
A: In early-stage partnerships, the PEO typically takes care of most of the HR functions while you concentrate on the business operations. As you get bigger, you need more sophistication. Maybe you hire an internal dedicated HR person, and the PEO moves into strategic advisory roles.