Why startups use PEOs, what a PEO handles for an early team, the trade-offs, remote and multi-state hiring, how to compare costs and when to move off a PEO.
| Area | PEO usually handles | You still handle |
|---|---|---|
| Payroll and taxes | Running payroll, filing federal and state employment taxes | Approving pay, sending accurate hours for non-exempt staff |
| Benefits | Plan access, enrollment, carrier issues | Choosing contribution levels and eligibility within plan options |
| Compliance | Templates, posters, guidance, some filings | Classifying roles correctly, following wage and hour rules, managing people |
| Equity | Usually nothing | Stock options, cap table and related tax reporting with your counsel and equity platform |
| Hiring abroad | Usually not covered | Employer of record or local entity for non-US hires |
Startups often pay early team members as contractors or treat everyone as salaried and exempt. Both can create problems. Whether someone is an employee or an independent contractor depends on the actual working relationship, not the label. Being salaried does not by itself make someone exempt from overtime; under the FLSA, exempt status generally depends on both a salary test and the duties the person performs, and some states set higher thresholds. Roles such as customer support, operations or warehouse staff are often non-exempt. A PEO can flag issues, but the decision and the risk stay with you.
See how EZTime works for your industry, from time tracking to shift scheduling.
Once you hire hourly or non-exempt employees, you need accurate records of hours worked each day and week, plus overtime. That is easy to overlook in a startup culture of flexible hours and late nights. Set up time tracking before the first non-exempt hire, make sure employees record all work time, including time spent answering messages after hours, and send approved hours to the PEO each pay period. See our guide to tracking remote employee hours.
Our PEO cost calculator and PEO pricing guide can help.
Some early-stage companies can apply part of the federal research credit against payroll taxes, subject to eligibility rules and limits. If you plan to claim it, ask your tax adviser how it interacts with your PEO arrangement and whether the PEO is IRS-certified; our certified PEO guide explains why that can matter. Confirm details with current IRS guidance.
Plan the move around a quarter or plan year end, and see our PEO vs. ASO guide for a middle path.
A seed-stage software startup plans to hire eight people across five states in a year, including two hourly customer support staff. The founders choose a PEO for benefits and multi-state registrations, set up time tracking for the support team before their first day and review fees each quarter. At around 70 employees, with a people operations lead in place, they compare an ASO and in-house payroll and start planning a move at the next plan year.
EZTime is not a PEO and does not process payroll. For startups with hourly or field staff, it records accurate hours to send to your PEO: mobile and web clock-in, GPS stamps where relevant, break tracking, labor rule alerts, PTO balances and reports in PDF and Excel. Plans start from $2 per employee per month; see pricing.
Often, if it needs benefits quickly, has employees in several states and no in-house HR or payroll expertise.
Pricing is usually per employee or a percentage of payroll, plus benefits. Get several quotes and check minimum fees.
Usually not. Equity is handled with your lawyers, accountants and an equity management platform.
Most US PEOs cover US employees only. For other countries, look at employer of record services or a local entity.
Exempt employees generally do not need hour records under federal law, but non-exempt employees do, including some salaried ones.
Often when headcount and HR expertise make in-house or ASO options cheaper and more flexible.
EZTime’s labor rule alerts warn about weekly hour limits, short rest between shifts, overtime thresholds and employees who forgot to clock out. Pricing starts at $2 per employee each month, with a $20 monthly minimum.