As organizations grow, HR responsibilities tend to grow with them, sometimes faster than expected. With growing demands around hiring and benefits to compliance and employee relations, many business leaders reach a point where managing HR internally becomes challenging without additional support. That’s where two common solutions come into play:

1. Outsourced HR
2. Professional Employer Organizations (PEOs)

While they can seem similar on the surface, the structure, level of control, and responsibilities behind each model are different. Understanding those differences can help you choose the right fit for your business.

What is outsourced HR?

Outsourced HR is a flexible service model where an external HR team provides support, guidance, and expertise. Organizations can outsource HR for:

• Day-to-day employee relations support
• Policy development and handbook updates
• Recruiting strategy and onboarding assistance
• Compensation and benefits strategies
• Performance management coaching
• Compliance guidance and training
• Strategic HR planning

The key benefit is flexibility. Businesses can scale services up or down depending on their needs, while maintaining full internal control over decisions and employment practices. This model provides businesses access to a range of HR expertise, from day-to-day support to senior-level, CHRO-caliber guidance, without building an internal team. Outsourced HR often works best as an advisory and partnership-based approach, where the business continues to manage payroll, benefits, taxes, and compliance.

What is a PEO?

A Professional Employer Organization (PEO) provides bundled HR services through a structure known as co-employment.

In a co-employment arrangement:

• The business maintains control over day-to-day operations and employee management
• The PEO becomes the employer of record for certain administrative functions

PEOs typically handle:

• Payroll processing
• Benefits administration
• Workers’ compensation coverage
• Tax filings
• Certain compliance responsibilities

This model can offer strong support, particularly for organizations looking for access to larger benefit plans or administrative assistance. However, co-employment also introduces a shared relationship that requires clarity around decision-making authority and communication expectations.

Advisory vs. Co-Employment

The biggest difference between outsourced HR and a PEO comes down to structure.

 
With outsourced HR, the relationship is consultative. With a PEO, the relationship is contractual and shared.  

Cost & Control Implications

Both options involve investment, but the cost structure and level of control differ.

Outsourced HR

• Typically priced as a monthly retainer or hourly support
• Services can be tailored to an organization
• Company retains full authority over HR policies and decisions

PEO

• Often priced as a percentage of payroll or per-employee fee
• Bundled services may include benefits and insurance
• Some administrative items flow through the PEO system as part of the shared employment relationship

It’s important for companies using a PEO to have someone internally who clearly understands what decisions remain under the organization’s control, what changes the PEO may implement independently, and how quickly requests or issues will be addressed. Without that internal oversight and clarity upfront, unexpected adjustments can occur and may negatively impact the employee experience.

Who holds liability?

Another major distinction between outsourced HR and a PEO is the level of responsibility assumed by each model. With a PEO, the organization enters a co-employment relationship in which the PEO often takes on certain administrative compliance functions and may share or assume liability in areas such as:

• Payroll tax filings
• Workers’ compensation
• Benefits administration compliance

This structure can provide meaningful support for businesses looking to reduce internal administrative burden, but it also makes communication and responsiveness especially important. Response time with a PEO may depend on factors such as:

• The size of your organization
• Call center structures
• Assigned account representatives
• Service tier levels
  
  

When to Choose Outsourced HR vs. a PEO

Choosing between outsourced HR and a PEO depends on your organization’s structure, goals, and the level of support you’re looking to add.  

Ideal Business Scenarios for Choosing Outsourced HR

Outsourced HR may be ideal for organizations that want expert guidance while maintaining full control over employment decisions. This approach is often a great fit if your business:

• Wants strategic HR support without entering a co-employment arrangement
• Needs flexible services that can scale as the organization grows or changes
• Values internal ownership over policies, culture, and employee experience
• Already has payroll and benefits systems in place, but needs HR expertise alongside them
• Wants a dedicated partner focused on compliance coaching, leadership support, and long-term people strategy

Ideal Business Scenarios for Choosing a PEO

A PEO may be a strong fit for organizations that are looking for a more bundled, administrative solution. This model can work especially well if your business:

• Wants access to more robust or cost-effective employee benefits through a larger benefits pool
• Needs assistance with time-consuming payroll, tax, and HR administration
• Has limited internal HR capacity and prefers an outsourced infrastructure
• Is comfortable operating within a co-employment relationship where certain responsibilities are shared
  
  

Choose The Right Fit with Lutz

If you’re considering outsourced HR support or evaluating how a PEO fits into your long-term people strategy, Lutz can help. Our Outsourced HR services provide flexible, relationship-driven guidance to help organizations stay compliant, support employees, and plan for growth. Contact us to learn more.

• Discipline, Harmony, Context, Consistency, Learner

Courtney Martin

HR Benefits & Compliance Manager

Courtney Martin, HR Benefits & Compliance Manager, began her career in 1995. With extensive experience in human resources and a focus on employee benefits and compliance, she plays a key role in supporting both Lutz team members and Outsourced HR clients. 

She specializes in health insurance benefits and state and federal compliance laws, helping individuals and organizations navigate complex requirements with clarity and confidence. Whether she’s answering employee questions or consulting with clients, Courtney brings a thoughtful, consistent approach that fosters trust and minimizes stress. 

 

Courtney lives in Blair, NE, with her spouse, Dave. Outside the office, you can find her rollerblading or spending time with friends and family. 

402.827.2081

cmartin@lutz.us

• Discipline, Achiever, Harmony, Consistency, Relator

Luke Muse

Outsourced HR Associate

Luke Muse, Outsourced HR Associate, began his career in 2024 as an intern with Lutz. During this time, he developed a strong foundation in human resources while supporting both the internal team and client engagements, growing into his current full-time role.
 
Specializing in HR support, Luke works with clients on a variety of services, including strengths-based development, compensation, compliance, policy building, and training initiatives. He values seeing clients spend more time doing what they do best, knowing his work helps free up capacity and strengthen their people operations. His steady, approachable style ensures clients receive support that is both consistent and impactful.
 
Luke lives in Omaha, NE. Outside of work, you’ll find him running, playing pickleball, and spending time with family and friends.

402.514.9206

lmuse@lutz.us

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