Payroll Administration

Why Do I Need to Work with a PEO to Help with Payroll Administration?

Payroll is the process through which employees in a company receive their wages. The payroll process entails tracking the number of hours put in by each employee, employee benefits, and remitting payroll taxes.

Payroll taxes are payments required by law paid by employers calculated as a percentage of your employees’ wages. As an employer, you are mandated by law to deduct a certain percentage of the employee salary and remit the deduction as taxes to the government.

Percentages are based on the wage of the employee, and you’re required to calculate the amount payable for social security and Medicare taxes, for example.

Because of the complexity of the process, taxes need a specialist to help you meet deadlines and prevent non-compliance penalties. Having a reliable payroll advisor helps you avoid penalties for violating the Department of Labor laws, including provisions on minimum wage, overtime, and other aspects.

What Are the Key Aspects of the Payroll Process?

The payroll process begins after you hire an employee. You must pay employees based on the number of hours worked according to the pay rate defined in their contract. Before giving the net pay, you must first deduct state and federal taxes, unemployment tax, and insurance.

The net pay is the amount you pay to the employee after deducting their withholding tax and benefits from the gross pay. The total compensation is the hours worked multiplied by the hourly rate or the salary per period. The net compensation is paid in the form of a check, direct deposit, or payroll card.

Each State and the federal government require you to document and report payment information, including hours worked, the rate per hour or salary, and deductions, on the pay stub. Violation of state pay stub laws attracts a penalty of $ 50 – $ 100 per occurrence of the breach.

What Is the Difference Between Working With a Standard Payroll Service and a PEO for Your Payroll Support Needs?

You’ve heard of the advantages of outsourcing your payroll, and you could be considering it as an option for your business. But this begs the question, what is the difference between working with a payroll service and a PEO?

Due to the expertise required to fulfill the legalities of payroll management, you must secure the services of either a PEO or a Payroll service company. With payroll services, as an employer, you retain the sole responsibility of managing your workforce. The payroll services only handle the responsibility of administering employee salaries, depositing and reporting taxes, and managing payroll data.

The payroll professionals are responsible for ensuring compliance with tax laws, maintaining records of new employees, and adjusting records to reflect employees who exit your company. Payroll services including calculating reimbursements, overtime, bonuses, and holiday pay for your employees.

On the other hand, a PEO helps your business because you get all you would working with a standard payroll company but with added benefits. A PEO is a co-employer and uses its tax identification numbers to administer your payroll. The PEO handles complete payroll services, including workers’ compensation insurance, recruitment support, 410 (k), benefits, and ensures that you comply with regulatory requirements concerning managing your human resource.

With a payroll service, you maintain the responsibility of securing insurance to handle workers’ compensation as required by the state law. But you get to offload, for instance, workers’ comp insurance requirements to a PEO since they’re the co-employer on record.

Read: Affordable Workers Compensation Insurance for Small Businesses

What Is the Cost of Securing a PEO Payroll Service?

The cost implication of working with a PEO service depends on the salaries and benefits you want to afford to your employees. Most PEOs charge either a percentage of the payroll or a fee per employee per month.

Payroll percentage – As the name suggests, is the percentage of your payroll’s total cost for each pay period.

Per Employee Per Month (PEPM) – PEPM is calculated as a flat rate payable per employee.

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Depending on the PEO you’re working with, you’re likely to get a discount per employee with the more employees you have working in your business. For the PEPM, the price is between $30 – $100 per month per employee depending on the PEO and the services provided. For the percentage rate, the cost is usually around .5 – 3% of total payroll.

What are the Pros and Cons of working with a PEO for Payroll Needs?


  • A PEO will take care of compliance requirements, which means you will avoid the legal consequences of payroll administration non-compliance.
  • Since the PEO is the co-employer on record, it offloads some of the liability on payroll compliance and insurance requirements, including administration and claims.
  • PEOs work with different employers and therefore benefit from economies of scale when securing and negotiating health insurance, workers’ comp, and retirement plans. Therefore, working with a PEO means you will be able to offer your employees competitive benefits even as a small business.
  • You do not need to stay ahead of the ever-changing legal and regulatory landscape for matters concerning payroll and employee management. Your co-employer handles the administrative aspects of human resource management as you focus on the core aspects of your business.


  • Working with a PEO means that you still retain the full and sole responsibility of defining the organizational vision, long and short-term goals. However, you may have to consult your co-employer on aspects such as HR policy and other administrative aspects of managing staff.


Learn More about Working with PEOs read our Frequently Asked Questions

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