Every good business leader recognizes that their people are their most important asset. But managing HR, which includes everything from payroll to compliance to benefits, can be complex, costly, and time-consuming. That’s why many organizations choose to outsource HR responsibilities, either through a Professional Employer Organization (PEO) or a Human Resources Outsourcing (HRO) provider.
Both models provide valuable support, but they serve fundamentally different business needs. Understanding these differences is the key to choosing a solution that fuels your company’s long-term success.
At LBMC Employment Partners, we understand this choice. We’ve evolved into a PEO-first company because we believe it offers the most time-saving, cost-effective, and robust service offering for our clients. We are here to help you navigate this decision with clarity and confidence.
Understanding the Core Difference: Liability and Scope
The core distinction between a PEO and an HRO lies in the relationship model, scope of services, and shared liability.
What is a PEO? (The Co-Employment Partner)
PEOs are for companies that want to outsource their entire HR administration and share liability. The PEO enters a co-employment relationship with your business.
- Relationship: The PEO becomes the employer of record for tax and insurance purposes. You retain control over all daily operations, management, and staffing decisions.
- Scope: PEOs offer a comprehensive, all-in-one HR solution. They provide everything from payroll management and tax filing to workers’ compensation, benefits negotiation, and compliance management.
- Key Advantage: Because PEOs aggregate multiple organizations, they leverage massive buying power to offer small businesses access to Fortune 500-level health, dental, vision, and retirement benefits at competitive rates. Through this buying power, they also offer competitive workers’ compensation benefits and risk management administration. This makes PEOs the ideal HR solution for growing companies that need a strategic partner, personalized expertise, and attractive employee benefits packages. Employers also access Employment Practices Liability Insurance (EPLI) through the PEO relationship for added protection against employment-related claims.
What is an HRO? (The À La Carte Vendor)
HROs provide more of an à la carte or vendor option. They act as an external consultant or service provider.
- Relationship: There is no co-employment. Your company retains full liability for all compliance and legal matters, as there is no EPLI insurance offered through the HRO relationship.
- Scope: HROs allow you to pick and choose specific services to fill internal gaps. Many businesses use HROs for a single complicated task like payroll processing, specialized recruiting, or developing training programs.
- Key Advantage: HROs offer high flexibility and customization. They are a great solution for companies with an existing HR department that needs targeted help without relinquishing control over data systems or internal processes.
How Do You Make the Decision? The 5 Key Questions
Here are a few questions we encourage business leaders to consider when they’re choosing between an HRO or PEO:
Are we struggling to consolidate key functions like HR, payroll, and benefits?
A PEO provides one centralized team and platform. This all-in-one consolidation eliminates vendor management headaches by simplifying operations and communication.
Is HR work pulling leadership away from strategic initiatives?
For many companies, HRO is a temporary step. The moment you feel like you’re spending too much time on HR-related tasks rather than focusing on business, it can be a clear signal to switch to a PEO.
Does our team have the time and expertise to stay on top of compliance requirements?
Through co-employment, the PEO shares liability for certain compliance issues, reducing your overall risk exposure with hands-on support that sees you through the execution of workplace initiatives.
How competitive are our current employee benefits?
If you are struggling to offer competitive benefits packages, a PEO provides the purchasing power necessary to access better plans.
What does our business look like in 3–5 years, and what support will we need to get there?
Choosing the right solution often requires looking beyond your immediate needs and focusing on your company’s long-term goals. Understanding an organization’s long-term plans is the best way to determine the ideal service line.
Should You Switch from HRO to PEO?
Many businesses start with an HRO when they only need help in a few areas. But over time, as the company grows, those gaps may become bigger challenges. Here are some signs it might be time to make the switch to a PEO:
- Benefits are falling behind competitors. You’re struggling to attract or retain talent because you can’t offer the same level of benefits as other employers.
- HR feels fragmented. Payroll, benefits, and compliance are handled by different vendors, leading to inefficiencies and errors.
- Compliance risks are growing. The legislative landscape is becoming more complex, and your internal team doesn’t have the capacity to do it all.
- Leadership is stretched too thin. HR administration is eating up valuable time that should be focused on growth and strategy.
A PEO brings everything together—consolidating vendors, improving employee offerings, and providing hands-on guidance to help you stay compliant and competitive.
Why LBMC EP is PEO-First
At LBMC Employment Partners, we’ve worked with companies of all sizes and industries. Over time, we’ve seen firsthand that a PEO-first model offers the most time-saving, cost-effective, and robust HR solution for small to mid-sized businesses.
That doesn’t mean we can’t support HRO needs—we can and do. But we’ve chosen to lead with PEO because it delivers unmatched value to our clients: better benefits, reduced risk, streamlined operations, and more time for business leaders to focus on growth.
If you’re evaluating HR outsourcing solutions, we’d love to help you think through your options. Our team can assess your current challenges, long-term goals, and employee needs to determine the right path forward.
Contact us today to discuss your unique needs, challenges, and questions.
