Investing in an HR team versus partnering with a PEO, which path is best for your small business?

As your business grows, managing HR gets complicated fast. Should you build your own HR team or explore the benefits of partnering with a Professional Employer Organization (PEO)? Here’s how to decide which choice best fits your business.

The Growing Pains of Success

If you own or run a small business, you’re doing it all from CEO, bookkeeper, recruiter, and maybe even the unofficial therapist when your team’s having a tough day.

Then, as your business expands, there are growing pains, and one thing becomes clear: you can’t do it all, especially when it comes to HR, and you need help. 

Should you build an in-house HR team, or should you partner with a PEO?

In-house HR or PEO

What’s the Real Difference?

With an in-house HR team, you hire and manage your own staff, people who work exclusively for your business. They handle recruiting, onboarding, payroll, benefits, and compliance, and they understand your goals and your culture.

A PEO, on the other hand, is an outsourced HR partner that essentially becomes a co-employer. You still run your business and manage your team. At the same time, the PEO handles payroll, benefits, taxes, and compliance (in multiple states) on your behalf, offering expertise, enterprise-level benefits, the latest tech, and economies of scale most small businesses typically can’t achieve alone.

🎯More than 230,000 small- and mid-sized companies across the U.S. already partner with a PEO.

According to new data from NAPEO, half of those businesses have between 10 and 49 employees, and another 35% have fewer than 10. In other words, most companies that use PEOs are true small businesses that simply need help managing the growing demands of HR.

In short:

🔸In-house HR = Personal, hands-on, fully customized

🔸PEO partnership: Team of experts, cost-efficient, lower overhead, access to better benefits

Why Go In-House?

Building Culture from the Inside Out

One of the biggest pros of having an in-house HR team is control. Your HR staff works directly for you, in your space (or virtual space), immersed in your company’s culture, goals, and involved in day-to-day decisions. They know your employees by name, understand your workplace dynamics, and can sense when morale dips or when it’s time to celebrate a big win.

That insider perspective allows HR to act as a strategic force, not just an administrative one. An in-house team can lead training and development, and align hiring strategies with long-term business goals.

And because they’re right there with you, they can respond quickly to changes as they happen. Whether you need to implement a new benefit or adjust your hiring processes, your HR staff can typically act right away, ensuring your business remains agile and proactive.

👉 But here’s the trade-off: Adding experienced HR professionals is expensive.

Hiring a qualified HR manager or team members means paying salaries, benefits, and ongoing training costs. You’ll also need systems — HR software, payroll tools, compliance tracking, and possibly legal support. For a small business, that can eat up a big chunk of the budget.

There’s also the question of bandwidth. One or two HR managers can handle a lot, but as you grow, the complexities multiply, such as multi-state compliance and benefits administration. Without adding specialized expertise, it’s easy to fall behind or make costly mistakes.

Why Partner with a PEO?

Expertise Without the Overhead

Now, let’s take a look at the advantages of partnering with a PEO.  

A PEO lets you tap into a full suite of HR services - from payroll and compliance to benefits and general HR - without having to build an internal team from scratch.

🎯 A PEO can feel like gaining the expertise and resources of an established HR team overnight.

Think of it as hiring an entire department of HR experts on a subscription. You get expertise, state-of-the-art technology, and the benefits-buying power - think Fortune 500-style health plans and retirement options that small businesses couldn’t access alone.

🎯 NAPEO’s latest research highlights a “sweet spot” for businesses that work with PEOs: employers with 20 to 499 employees. Within this range, the average PEO adoption rate—the percentage of companies using a PEO — is 14%, and slightly higher (15%) for companies with 50–99 employees.

Why is this important? Once a business surpasses 20 employees, HR demands go off the charts with more benefits enrollment, payroll taxes, compliance, and keeping up with ever-changing labor laws — all while trying to focus on customers and sales. PEOs manage all of that.

For many business owners, the biggest perk is peace of mind. Because PEOs navigate complex compliance regulations, you don’t have to stay up late Googling “new overtime laws” or wondering if your employee handbook is still compliant. 

Partnering with a PEO means:

🔸Better Benefits for your employees (top-rated health insurance, 401(k), perks, and more)

🔸Peace of Mind with compliance support across federal, state, and local laws

🔸Less Admin and More Time back to focus on your people and your bottom line

🔸Accurate Payroll that’s error-free and on time

🎯Some business owners worry about losing control when working with a PEO, but that’s largely a myth. You still manage your people and make all the decisions. You don’t lose control; you just lose a mountain of paperwork.

PEO Partner or In-House HR Team?

How to Know Which One Fits Your Business

So, how do you decide? Start with a few honest questions.

➡️ How big is your business, and how fast are you growing?
A PEO can handle HR complexity while you scale.

➡️ What’s your biggest HR pain point right now? If it’s payroll, compliance, or benefits, a PEO can lighten the load. If you're starting out and focused on building culture or leadership development, in-house HR may be a better option.

➡️ How much control do you want? Want to offload the admin tasks, save money and time, and focus on growth? Choose a PEO. Want HR integrated into your daily decisions? Go in-house.

➡️ What’s your budget? PEOs can save on investing in HR salaries, system costs, and more. In-house HR requires a higher upfront investment.

➡️ What's your risk tolerance? An internal HR staff member may not be equipped to handle compliance responsibilities. An IRS-certified PEO's team of experts keeps up with all of the latest regulations (federal, state, and local), reducing the risk of errors, penalties, and legal complications.

➡️➡️READ MORE: Why More Businesses are Turning to PEOs

Signs a PEO Might Be the Smarter Move

Getting HR right is smart business. Some businesses start with a PEO, love the efficiency (and saving money), and never look back. Others outgrow their in-house team and need a partner to take them to the next level.  Here are a few helpful signs a PEO may be a smarter move:

🎯What matters most is finding the right setup that supports your people and frees you to focus on what you do best.

Need HR Help?

We've Got You Covered.

There’s no one-size-fits-all answer here. 

Whichever path you choose, the goal is the same: build an environment where your employees feel supported, protected, and empowered to do their best work.

If you're ready to find out what a PEO can do for your business, just give us a call. We're here to help you lighten your workload and strengthen your operations. So you can get back to growing your business.

Learn more about the PEO difference. Thousands of successful businesses are already doing it — and the data proves it works.

📥 Download the complete 2025 NAPEO white paper: PEO Clients: Who They Are, Where They Are, and What They Do, by Laurie Bassi and Dan McMurrer, McBassi & Company (October 2025) 📥HERE

About Propel HR. Propel HR is an IRS-certified PEO that has been a leading provider of human resources and payroll solutions for more than 25 years. Propel partners with small to mid-sized businesses to manage payroll, employee benefits, compliance and risks, and other HR functions in a way that maximizes efficiency and reduces costs. For more information, visit www.propelhr.com