PEO vs In-House HR in 2026: Costs, Pros & Smarter HR Efficiency

This is a choice that Connecticut business owners have to make sooner than they think. Do you engage an HR person to work in-house and deal with the compensation, systems, compliance risk, and continuous management that come with it? Or do you work with a professional employer group that can take care of payroll, benefits, and compliance for a set monthly fee? Both methods meet HR demands, but they do so in very different ways.

PEOs now help millions of workers across the country, and many growing firms are using them as a faster, better option. Below, we’ll go over the true trade-offs, the numbers that count, and how to choose the best option for your organization in 2026.

The Real Cost of Hiring an In-House HR Person

The Bureau of Labor Statistics says that the average salary for an HR expert was $72,910 in 2024. But that’s only the base pay. You’re also responsible for paying FICA taxes, unemployment insurance, workers’ compensation, health benefits, retirement payments, and all the other expenditures that come with hiring someone. The real cost of each employee is usually between 1.25 and 1.4 times their base compensation. That $73,000 HR person is actually costing you between $91,000 and $102,000 a year.

Your HR person needs tools to accomplish their job. A good Human Resources Information System can cost anything from $5 to $17 per employee per month, including setup fees that can reach five figures. You will have to pay for upgrades, maintenance, and a continuing license. Do you need software for payroll? That’s not the same. Platform for managing benefits? Another cost. A system for keeping track of time? You got it.

There is also the office space, computer equipment, phone system, and all the other tangible things an employee requires. Individually, they’re not a big deal, but they add up quickly when you’re already on a tight budget.

When you need help with a specific problem, which you will, you have to pay for outside advisors. Lawyers who work on employment cases charge between $300 and $500 an hour. Brokers for benefits take between 2% and 8% of your entire premium payments. Compliance consultants also don’t charge a lot. These expenditures add up rapidly, especially when things are complicated.

Understanding the PEO Alternative

When a PEO is in charge of HR, they work through something called co-employment. You still run your firm, telling staff what to do every day, managing their performance, and making big decisions. The PEO takes care of the legal and administrative duties of hiring people, such as processing payroll, submitting taxes, managing benefits, making sure that the company follows the law, and managing risk.

You can talk to a whole team of HR professionals through the connection, and each one is an expert in their own field. Based on cost reductions alone, NAPEO research shows that the average return on investment (ROI) for PEO clients is 27.2% per year. That’s real money coming back into your firm instead of being eaten up by HR costs.

What an In-House HR Person Gives You (Pros And Cons)

Pros

• Direct, day-to-day presence for culture, coaching, and employee relations.
• Full control over HR choices, vendors, and tone.
• Easier to build institutional knowledge tied to your strategy.

Cons

• Cost of recruiting, salary, benefits, taxes, training, and tech — and those add up fast.
• Single point of failure if that person leaves or gets overwhelmed.
• You still need HR systems, benefits buying power, legal support, and claims/compensation expertise — often requiring outside vendors.

A part-time HR generalist can work for a very small business that knows what kind of personnel it needs and has a restricted budget. But whether you require scalable payroll, compliance in more than one state, complex benefits, or workers’ compensation administration, one hire frequently can’t handle it all without costly extras.

What a PEO Delivers (Pros And Cons)

Pros

• Access to group pricing and enterprise-level benefits like health insurance, retirement plans, and more that small businesses don’t usually get on their own.
• One provider can handle payroll, benefits administration, workers’ compensation, and compliance support all at once.
• A team (not one person) with specialists for claims, legal updates, safety, recruiting, and HRIS.
• Predictable, scalable pricing and faster onboarding when you hire new people.

Cons

• Less direct control over some vendor choices (depending on the PEO).
• The price structure might be based on the number of employees or a percentage of the payroll. You should compare the overall cost (fees, benefits, and payroll) with in-house options.
• Transition or exit can be work-intensive; confirm terms up front.

A PEO is frequently the best choice if you want full coverage and to grow swiftly. If you require a policy that is very specific and complete control over your vendors, it could be best to recruit someone from inside.

Quick Comparison Table

Practical Checklist Before You Decide

• Run a 12-month total cost model (PEO fees + premiums vs. salary + systems + external fees).
• Ask PEOs for sample invoices, client references, and technology demos.
• Confirm what the PEO handles vs. what remains your duty (hiring, discipline, terminations).
• Check regulatory certifications (ESAC, CPEO status if relevant).
• Request transition terms: what happens if you leave?

Book a Meeting with an Expert at OEM America and Reclaim Your Time

It could seem like a good idea to hire just one HR person because they already know your business and culture. A PEO can cut down on administrative work, make employee benefits better, and let you focus on growth instead of paperwork. Take a serious look at the PEO path if HR chores are getting in the way of your strategy and income.

OEM America will provide you with a free consultation to go over your existing HR costs, find hidden costs and risks, and show you how a PEO could help your organization. You can get up to four hours of expert help, a free study that is specific to your business, and a plan that can save each employee up to $1,000. To get started, either fill out our contact form or call 860.528.5555.

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