Not every company needs a PEO. But certain profiles get an immediate return, and you can spot them quickly if you know what to look for.
- Multi-state complexity with small-team capacity If you’re hiring across three or more states and your “HR department” is an ops lead wearing six hats, co-employment is often cheaper than the mistakes you’re going to make—state unemployment rates mis-assigned, local paid-leave rules ignored, out-of-state new-hire reporting missed, workers’ comp audits that wander.
A PEO’s value isn’t just access to benefits; it’s the rulebook that prevents penalties you never budgeted for. SHRM’s guidance here is simple: buy seasoned HR and compliance when the risk surface outgrows your in-house experience. SHRM
- You must look bigger to recruit Competitive healthcare, HSA-friendly plan designs, and national networks aren’t “nice to have” in a tight labor market. PEOs purchase plans at scale and can open doors your 38-employee group can’t open alone. The lift is twofold – materially better plan options and a cleaner Open Enrollment so people actually choose the right thing. Industry research from NAPEO shows most PEO clients are in that 10–49 employee band—exactly the size where benefits leverage and admin relief swing outcomes. Napeo
- Safety-sensitive work with inconsistent workers’ comp history Construction, manufacturing, field services—anywhere claims volatility whiplashes premiums. PEOs bring master workers’ comp programs with loss-control baked in. When you need to stay on a job because the certificate must be issued today, the value of a mature WC program becomes painfully obvious. (If you’ve ever watched a project stall for want of a COI, you get it.)
- Founder-led growth with broken back office You scaled revenue. HR was a Google Drive folder and good intentions. Payroll “mostly worked” until you had terminations, garnishments, or multi-state nexus. The PEO plugs in a full stack -onboarding, payroll, benefits, handbooks, EPLI, ACA, COBRA – and your leadership team gets to stop being accidental HR clerks. NAPEO pegs the footprint at 200,000+ SMBs and ~4.5M worksite employees on PEOs today; that’s a lot of founders choosing the back-office that lets them sell. Napeo
Who probably doesn’t need a PEO (yet):
- You’re a 12-person, single-state company with simple comp and a broker-led benefits program that works. If your plans are competitive and your HR load is light, an ASO or targeted tools (payroll + HRIS) may be enough. Sequoia One
- You’re a larger org with a strong HR team that wants deep control over every plan and workflow. You’ll likely prefer self-funded or level-funded strategies with a best-of-breed stack over the PEO’s packaged approach.
Cost, candidly. PEOs charge in two typical ways: a per-employee fee or a percent of payroll. Yes, you need a clean fee comparison to your current stack (payroll, HRIS, benefits admin, broker comp, compliance point solutions). But don’t ignore the offsets: benefit rate deltas, workers’ comp smoothing, EPLI, and the value of not making mistakes. U.S. Chamber guidance on PEO vs. ASO nails the core trade: lower benefits costs and richer plans via pooling, in exchange for less mix-and-match flexibility. Pick the variable you care about more. U.S. Chamber of Commerce
What about CPEO? If you’re considering a PEO mid-year with outstanding tax items, IRS-certified providers (CPEOs) can simplify federal employment tax transitions and shift certain liabilities to the PEO as a matter of statute. It’s not a must-have for every client, but when finance is nervous about payroll history, it’s the calmer path. irs.gov+1
How 1706 advises clients through the decision We start with the real blockers: recruiting leverage, compliance risk, workers’ comp pain, HR capacity, and benefits competitiveness. Then we map PEO vs. ASO vs. traditional broker-admin side-by-side, including hidden costs (carrier file fees, COBRA admin, ACA reporting, local tax setup, offboarding). Finally, we run a two-state, two-scenario benefits comparison—your current plan vs. the PEO’s master plan – and we pressure-test service: ticket SLAs, implementation timeline, and what happens when something breaks on a Friday at 4:15 p.m.
The tell is simple: if you need bigger-company benefits and steadier compliance now, and you don’t have the headcount to build it, a PEO earns its seat. If you want ultimate control and you’re willing to staff for it, keep your EIN on payroll and assemble a best-of-breed stack with a broker who can design and defend it.
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Sources
- NAPEO — Industry overview, size of market, client profile. Napeo+1
- SHRM — When/why to use a PEO; advantages and limitations. SHRM
- U.S. Chamber of Commerce — PEO vs. ASO benefits and flexibility trade-offs. U.S. Chamber of Commerce
- IRS — CPEO program and tax/liability considerations when engaging a PEO. irs.gov+1
- Sequoia One — EIN/liability differences in ASO vs. PEO models. Sequoia One