Business owners often confuse PEOs, payroll services, and HRIS platforms. While these solutions overlap in some areas, they’re fundamentally different in scope, structure, and value proposition.
Understanding these differences helps you choose the right solution for your specific needs and budget.
What is a Payroll Service?
Payroll services process payroll—calculating paychecks, withholding taxes, filing tax returns, and handling year-end W-2s. That’s their primary focus, though many now offer additional features.
Core Functions:
- Payroll calculation and processing
- Tax withholding and payments
- Tax return filing
- W-2 and 1099 preparation
- Direct deposit management
- Basic time tracking
Popular Providers: ADP Payroll, Paychex Flex, Gusto (payroll tier), QuickBooks Payroll, Rippling
Relationship Structure: You’re hiring a payroll vendor. They’re a service provider, not an employer. You remain 100% responsible for all employer obligations, taxes, and liabilities.
Typical Cost: $30-$150 per month base fee plus $4-$12 per employee per month
What is an HRIS Platform?
HRIS (Human Resource Information System) platforms are software solutions for managing HR data, processes, and administration. They’re technology tools, not service providers.
Core Functions:
- Employee records management
- Benefits administration
- Performance management
- Time and attendance tracking
- Applicant tracking
- Onboarding workflows
- Reporting and analytics
- Document storage
Popular Providers: BambooHR, Namely, Zenefits, Rippling, Workday (enterprise)
Relationship Structure: You’re licensing software. The platform provides tools, but you handle all HR functions yourself. No co-employment, no service component beyond software support.
Typical Cost: $5-$20 per employee per month (software-only models)
What is a PEO?
PEOs (Professional Employer Organizations) create co-employment relationships, becoming the employer of record for tax and insurance purposes while you retain operational control.
Core Functions:
- Payroll processing and tax filing
- Benefits administration and purchasing
- Workers’ compensation management
- HR compliance support
- Risk management
- Employee relations guidance
- Dedicated HR support team
- Claims management
Popular Providers: ADP TotalSource, Insperity, TriNet, Justworks (PEO tier), Paychex PEO
Relationship Structure: Co-employment partnership. The PEO shares certain employer responsibilities and liabilities, particularly around payroll taxes, workers’ comp, and benefits compliance.
Typical Cost: $100-$300 per employee per month (often includes benefits)
Key Differences Explained
Employment Relationship:
- Payroll Service: No change—you’re the sole employer
- HRIS Platform: No change—you’re the sole employer
- PEO: Co-employment—PEO becomes employer of record for certain purposes
Liability Sharing:
- Payroll Service: You retain all liabilities
- HRIS Platform: You retain all liabilities
- PEO: PEO shares certain employment-related liabilities
Benefits Purchasing:
- Payroll Service: You purchase independently
- HRIS Platform: You purchase independently
- PEO: Access to PEO’s master benefits programs at group rates
Workers’ Compensation:
- Payroll Service: You purchase your own policy
- HRIS Platform: You purchase your own policy
- PEO: Included in PEO’s master policy (typically at better rates)
HR Support:
- Payroll Service: Minimal to none (or paid add-on)
- HRIS Platform: None (software-only)
- PEO: Comprehensive HR support included
Tax Responsibility:
- Payroll Service: Service files on your behalf, but you’re ultimately responsible
- HRIS Platform: You handle everything
- PEO: PEO assumes tax responsibility (especially for CPEOs)
Cost Comparison Example
25-employee company in Texas:
Payroll Service Option:
- Payroll service: $1,500/year
- Benefits (purchased independently): $150,000/year
- Workers’ comp: $20,000/year
- HRIS software (optional): $3,000/year
- HR consultant (as needed): $5,000/year
- Total: ~$179,500/year
PEO Option:
- PEO fees: $37,500/year (25 employees × $125/month)
- Benefits (through PEO): $105,000/year (30% savings from better rates)
- Workers’ comp: Included
- HRIS: Included
- HR support: Included
- Total: ~$142,500/year
- Savings: $37,000 (21%)
HRIS-Only Option:
- Payroll service: $1,500/year
- Benefits: $150,000/year
- Workers’ comp: $20,000/year
- HRIS software: $4,500/year
- HR consultant: $5,000/year
- Total: ~$181,000/year
When to Choose Payroll Service
Best for:
- Very small businesses (1-10 employees)
- Companies with simple needs
- Businesses with in-house HR expertise
- Companies with excellent benefits already
- Those wanting minimal cost
You can handle:
- Benefits selection and management
- HR compliance independently
- Workers’ comp shopping
- Employee relations issues
- All HR administration
When to Choose HRIS Platform
Best for:
- Companies with dedicated HR staff (50+ employees typically)
- Businesses needing technology for internal HR team
- Organizations wanting data and analytics capabilities
- Companies with complex HR processes to manage
You can handle:
- All HR functions internally
- Benefits and insurance purchasing
- Compliance management
- Employee relations and policies
- You just need software to manage it efficiently
When to Choose PEO
Best for:
- Small to mid-sized businesses (5-200 employees)
- Companies without dedicated HR expertise
- Businesses wanting better benefits at lower costs
- Organizations facing multi-state compliance
- Companies in high-risk industries (for workers’ comp savings)
You need help with:
- Benefits purchasing and administration
- Workers’ comp management
- HR compliance
- Payroll tax management
- Risk reduction
- Professional HR support
The Hybrid Approach
Some businesses combine solutions:
Common combinations:
- Payroll service + Benefits broker + HR consultant—piecemeal approach
- HRIS platform + Payroll service—technology plus transaction processing
- PEO for employees + Payroll service for contractors—mixed workforce solution
Hybrid approaches work but create coordination complexity and usually cost more than integrated solutions.
Evolution Path
Many businesses evolve through these solutions:
- Startup (1-5 employees): Simple payroll service like Gusto
- Growing (10-50 employees): PEO for comprehensive support and benefits
- Established (100+ employees): In-house HR team with HRIS platform
- Large (500+ employees): Full HR department with enterprise HRIS
This progression isn’t universal, but it’s common.
Making Your Decision
Consider:
- Company size—bigger companies can justify in-house HR
- HR expertise—do you have it internally?
- Benefits importance—is recruiting/retention dependent on great benefits?
- Compliance complexity—multi-state? high-risk industry?
- Budget—what can you afford?
- Growth trajectory—where will you be in 2-3 years?
For most businesses under 100 employees, PEOs provide the best value: comprehensive services, better benefits, reduced risk, and predictable costs.
Not sure which solution is right for your business? Contact PEO Consulting Partners for an objective analysis. We’ll help you determine whether a PEO, payroll service, or HRIS platform best fits your needs—and if a PEO is right, we’ll find the perfect one at no cost to you.