PEO vs. Payroll Service: Which Does Your Business Need?

A payroll service processes paychecks and files taxes under your EIN for roughly $50 to $300 per month. A PEO (professional employer organization) co-employs your staff under its EIN, bundles large-group health benefits, workers' comp and HR compliance, and costs roughly $40 to $125 per employee per month or 2% to 12% of payroll. PEOs make sense from about 5 to 150 employees when benefits costs or HR risk are the problem; a payroll service is right when you just need accurate paychecks.

Verified November 2026

What a PEO actually does

Under a PEO, your employees are legally co-employed by the PEO for tax and benefits purposes. The PEO files payroll taxes under its own EIN, sponsors the health plan, carries workers' comp, and takes on HR compliance. You still hire, fire, manage and set pay. ADP TotalSource, Paychex PEO, Justworks and Rippling PEO are the main options.

When a PEO pays for itself

• You have 5+ employees and want health insurance but small-group quotes are high
• You have employees in multiple states and no HR person
• Your workers' comp rates are high (construction, trades, healthcare)
• You have had an HR complaint or are worried about one

When a payroll service is enough

• Under 5 employees
• Single state, no benefits yet
• You already have a broker you like for health insurance
• You want the lowest possible monthly cost

Cost comparison

A 10-employee company pays roughly $109 to $350 per month for a payroll service versus $400 to $1,250 per month for a PEO. The PEO is only cheaper when the benefits savings and avoided HR costs exceed that gap, which is common once you offer health insurance.

Frequently asked questions

Can I leave a PEO?

Yes, usually with 30 to 90 days' notice. The cleanest exit is at year end because your payroll taxes restart under your own EIN.

Do I lose control of my employees with a PEO?

No. You keep all management decisions. The PEO handles the administrative employer functions.

Which payroll companies offer a PEO?

ADP (TotalSource), Paychex (Paychex PEO), Rippling (Rippling PEO), Justworks and TriNet. Gusto, OnPay and QuickBooks do not offer a PEO.

More guides

• How Much Does Payroll Cost for a Small Business in 2026?
• How to Switch Payroll Providers Without Missing a Paycheck
• ADP Payroll Pricing Explained (and How to Get a Lower Quote)
• Paychex Pricing Explained: Flex Essentials, Select, Pro and Enterprise