What’s the Difference Between a PEO and Outsourced HR
When your small business starts growing, managing HR internally can feel overwhelming. That’s when many leaders begin exploring options like a Professional Employer Organization (PEO) or Outsourced HR services.
At first glance, both promise to simplify HR — but the structure, control, and long-term value they offer are quite different. Understanding how each model works will help you choose the right path for your team and your culture.
What Is a PEO?
A Professional Employer Organization (PEO) partners with your business through a co-employment relationship. In this setup, the PEO becomes the “employer of record” for tax and benefits purposes. This means your employees are technically employed by the PEO, even though they work for your company.
PEO Services Typically Include:
- Payroll processing and tax filings under the PEO’s EIN
- HR compliance and risk management
- Employee benefits administration (often through pooled group plans)
- Workers’ compensation and employee onboarding tools
While a PEO can reduce administrative burden, it also means giving up a degree of control over your HR systems, benefits, and employee experience.
What Is Outsourced HR?
Outsourced HR — also called fractional HR or managed HR services — allows your business to retain full control as the employer while partnering with experts who manage your HR functions.
Unlike a PEO, an outsourced HR provider works for your business, not in place of it. You maintain your tax ID, your systems, and your brand — while gaining an experienced team to build your HR foundation, improve compliance, and drive people strategy.
Outsourced HR Services Often Include:
- Full-cycle recruitment, onboarding, and performance management
- Payroll administration through your existing system (e.g., Gusto, Paylocity)
- Policy creation, handbook development, and compliance oversight
- Leadership coaching and culture-driven HR strategy
- Employee relations and engagement support
Why companies choose Outsourced HR: It’s flexible, strategic, and designed to grow with your business — without the cost of hiring a full in-house HR team.
PEO vs. Outsourced HR: A Side-by-Side Comparison
| Category | PEO | Outsourced HR (Gró HR) |
|---|---|---|
| Employment Model | Co-employment | You retain employer status |
| Control & Flexibility | Standardized systems | Fully customizable |
| Payroll & Taxes | Run under PEO’s EIN | Run under your EIN |
| Benefits | Access through PEO group plans | Choose your own plans/providers |
| HR Focus | Administrative & transactional | Strategic, people-focused partnership |
| Scalability | One-size-fits-many | Scales with your business |
| Pricing Structure | % of payroll | Flat-rate or fractional fees |
| Cultural Alignment | Limited | Deeply integrated with your mission |
Why Many Businesses Transition Away from a PEO
As companies grow, they often realize that while a PEO simplifies payroll and compliance, it can limit flexibility and culture alignment.
Common Reasons Businesses Leave a PEO:
- Need for custom HR strategy instead of one-size-fits-all support
- Frustration with hidden fees or payroll percentage pricing
- Inability to create unique benefits or bonus structures
- Desire to own HR systems and employer branding
- Limited partnership in leadership development or employee relations
Outsourced HR bridges this gap — combining compliance confidence with strategic HR partnership that’s tailored to your people and goals.