PEO vs. payroll service: what's right for a medical practice?
A payroll company pays your staff. A PEO becomes a co-employer, so it also handles benefits, HR compliance, workers' compensation and payroll taxes, usually with access to group rates a small practice could not get alone.
The choice comes down to how much HR risk and administration you want to keep.
What a payroll service does
Calculates pay, runs direct deposits, files payroll taxes, produces year-end forms. Some add time tracking or a benefits portal.
What stays with you: choosing and administering benefits, your employee handbook, leave rules, onboarding and termination paperwork, workers' compensation, required postings, and every HR question your office manager fields.
For a small, stable team with someone competent handling HR, this is often enough.
What a PEO does
A PEO enters a co-employment arrangement. You keep full day-to-day control of your team: who you hire, what they do, how they are managed. The PEO shares employer responsibilities for payroll, benefits and HR administration.
In practice that means group health, dental, vision and retirement options; HR support you can call; a maintained handbook; onboarding and offboarding; workers' compensation; and keeping up with posting and training requirements.
The benefits question
This is usually what decides it.
A practice with a dozen employees negotiating health coverage alone is a very small group. Through a PEO, your staff are pooled with many other employers, which can open up plan options and pricing normally reserved for much larger companies.
For practices competing with hospital systems for front desk and clinical staff, that matters. Benefits are frequently the gap, and it is a gap a small employer cannot close on its own.
The compliance question
Handbooks, leave rules, classification, onboarding, terminations and required training all carry legal risk. A practice with ten employees still has to get them right; it just has nobody whose job that is.
The usual answer is that the office manager absorbs it, which means it is being done by someone with no HR training, between other work, while also running the front of house.
When each makes sense
A payroll service fits when your team is small and stable, someone capable already owns HR, you are satisfied with your benefits, and you want to keep costs lean.
A PEO fits when you are losing candidates on benefits, your office manager is spending real time on HR, your handbook is out of date or missing, you are growing or adding a location, or you want HR risk to sit with people who do it professionally.
How to compare honestly
Do not compare the PEO fee to your payroll fee. They are not the same product.
Add up what you currently spend on payroll processing, health and other benefits, workers' compensation, any HR or legal advice, and a fair estimate of the hours your office manager spends on HR. Compare that total against the PEO quote and the benefits your staff would actually get.
Sometimes it is close. Often the deciding factor is not the number but whether you would rather own HR risk or hand it to someone else.