Small businesses often face many challenges when managing human resources, payroll, and employee benefits. With limited staff and resources, these tasks can be time-consuming and complex, making it difficult for small business owners to focus on growing their company.
According to the National Association of Professional Employer Organizations (NAPEO), New York has a significant concentration of PEO clients, with approximately 10% of U.S. businesses using PEO services located in the state. These businesses span various industries, including professional services, healthcare, construction, and manufacturing.
What a PEO Does — and Doesn’t Do
While a PEO provides valuable support, it doesn’t take over the business. The relationship is a co-employment model, where the PEO handles back-office HR tasks, and the business remains in charge of daily operations and employee management.
| Handled by the PEO | Handled by the Business |
|---|---|
| Payroll processing and tax filing | Hiring and firing decisions |
| Employee benefits administration | Managing daily employee performance |
| HR compliance and regulatory guidance | Defining company culture and policies |
| Workers’ compensation insurance and claims | Assigning job duties and schedules |
| Assistance with onboarding and terminations | Strategic planning and business operations |
| Access to group-rate benefits plans | Supervising staff and making leadership decisions |
This clear division of responsibilities helps small businesses stay compliant while still retaining full control of their team and mission.
Common Misconceptions About Outsourcing HR
Even in 2025, outsourcing HR still raises eyebrows among many professionals. For some, it’s a strategic partnership that elevates the HR function; for others, it’s viewed with skepticism or even mistrust.
As workforce complexity, compliance risks, and technology demands grow, outsourcing is no longer just about cutting costs — it’s about strengthening HR’s impact.
Below are some of the most common misconceptions about HR outsourcing — and the truths behind them.
1. “Outsourcing HR means losing control.”
Reality: Outsourcing doesn’t mean handing over the steering wheel — it means bringing on a co-pilot. Strategic direction, culture, and key people decisions stay in-house. The outsourcing partner handles execution and compliance, freeing internal HR teams to focus on strategy and engagement. In many cases, outsourcing actually increases control through better systems, reporting, and consistency.
2. “It’s only for big companies.”
Reality: Small and mid-sized businesses often benefit the most. Outsourcing gives them access to enterprise-level tools, compliance expertise, and HR technology — without the overhead. For startups or growing organizations, it’s a way to scale HR capabilities faster and smarter.
3. “Employees won’t like it.”
Reality: What employees dislike is poor communication, not outsourcing. When handled transparently, outsourcing can enhance employee experience through faster onboarding, consistent payroll, and accessible HR support.
The key is clear communication about why the change is happening and how it benefits everyone.
How PES Combines Compliance, Payroll, and Benefits
Co-employment: A PEO enters a co-employment agreement, becoming the employer of record for administrative purposes while the client company retains control over daily operations.
Payroll and tax management: PEOs handle all payroll processing, tax withholdings, and quarterly and annual tax filings (e.g., Forms 941, 940). They also prepare and distribute W-2s and file them with the Social Security Administration.
Benefits administration: They provide access to comprehensive benefits packages, often at lower rates due to employee pooling, and manage the enrollment and administrative tasks associated with them.
Compliance: PEOs have specialists who monitor federal, state, and local regulations to keep businesses compliant with laws like the Fair Labor Standards Act (FLSA), the Affordable Care Act (ACA), and OSHA standards. This includes managing workers’ compensation and other HR compliance risks.
Operational efficiency: By automating and centralizing these functions, PEOs reduce errors, save businesses time, and free up internal resources to focus on core business activities.
Shared liability: In a co-employment model, both the PEO and the client company share legal responsibility for compliance and payroll errors.
Real Businesses, Real Results with PES
Discover how small businesses, startups, and organizations save time, money, and stress with our all-in-one HR, payroll, and compliance support.
Partnering with PES gives you access to a team of seasoned HR and payroll experts dedicated to streamlining your operations and giving you valuable time back. Whether you’re handling HR responsibilities on your own or managing a full department, we customize our services to fit your unique needs, relieving you of administrative tasks so you can focus on what truly matters: cultivating a strong company culture, driving organizational growth, and attracting top talent.
Our approach blends the advantages of pooled benefits and cost efficiencies with smooth, integrated operations—helping your business run efficiently and thrive. With Pinnacle Employee Services, you’ll gain the tools, expertise, and support to elevate your organization and refocus your energy on your long-term vision for success.
