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What are the potential disadvantages of using a PEO?

Home » Human Resources » PEO/Employee Leasing » What are the potential disadvantages of using a PEO?

The most obvious disadvantage is the loss of control over certain areas within your business. Although you will continue to make the decisions about the vision and direction of your company, you may decide that the freedom from administrative worry isn’t a fair exchange for the transfer of administrative power. Additional disadvantages may include:


  • Employee dissatisfaction: It’s entirely possible that your employees will be very happy with an employee leasing arrangement, especially if that arrangement results in enhanced benefits packages and more timely distribution of compensation. However, you should realize that a PEO contract requires that you legally terminate all of your employees, who are then hired by the PEO. Understandably, that change may confuse or even upset some of your employees.
  • Increased subjection to business statutes: One of the advantages of a small business lies in its ability to avoid certain governmental regulations. Many of those regulations are aimed at large companies, so they don’t apply to small businesses. However, many PEOs are so large that such regulations will, in fact, apply to them, which means that your small business will potentially find itself monitored and regulated in ways it otherwise could avoid.
  • Loss of flexibility: It’s true that a PEO can relieve you of a great deal of administrative stress. It’s also possible that the PEO will allow you to provide your employees with better benefits packages than you could offer by yourself. However, those advantages may come with a price. You may, for example, discover that you have very little control over the hiring or termination of employees within your company. Moreover, you’ll be expected to choose an employee benefits package from those offered by the PEO, which may significantly impact your ability to choose a package that suits your employees.



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