HRIS vs PEO: Which One a 20-to-500-Person Employer Should Buy

People often compare an HR product with a PEO as if they were two products of the same kind. Usually they are comparing two operating models. An HRIS is software you run; the company remains the employer. A PEO (professional employer organization) is a service that takes on payroll administration and tax reporting for you, per the IRS; Rippling describes its own PEO as becoming your co-employer. Pick the model first, then the vendor.

The difference in one table

What IRS certification changes

The IRS certifies some PEOs as CPEOs and publishes a list of them. The certification is not a quality badge; it changes liability. Under 26 U.S.C. 3511, a certified PEO is treated as the employer, and no other person is, for federal employment taxes on the wages it remits to a work-site employee. With an uncertified PEO, that statutory rule does not apply. If you go the PEO route, check the IRS public listing for the organization's exact legal name before signing.

When each one wins

Choose an HRIS when you have, or are about to hire, someone who owns HR; you want your own benefits plans and carrier relationships; you are past the size where pooled benefits are the main draw; or you want full control over policies and data. That describes most employers of 20 to 500 people, the readers this site is written for.

Choose a PEO when you are a small team without HR staff, benefits are the problem you are actually trying to solve, and you are comfortable sharing employer duties. The trade is control and exit complexity for a service that takes work off your plate.

Our pick

An HRIS, and Rippling first. It is our top-ranked HRIS, and Rippling also sells a PEO. Rippling says that on enrollment it becomes your co-employer for payroll, benefits and compliance, and that you can move off the PEO later without replacing the underlying system. That is the hedge we like: start with the software, add the PEO only if benefits force the issue, and, by Rippling's account, leave it without replacing the system. Ask Rippling in writing whether its PEO is IRS-certified; its PEO page does not say.

• Pick BambooHR instead if you want a dedicated HR system and will keep payroll and benefits with separate providers.
• Pick Gusto instead if you are at the small end and want employee records, payroll and benefits together without a full HRIS.
• Who should skip the HRIS route: a team of a dozen people with no one in HR and a benefits problem to solve this quarter. A PEO is the faster answer there; check its certification first.