Founders of early-stage companies often consider partnering with a professional employer organization (PEO) as they build their initial teams, organizational structures, and benefits programs as these tasks can quickly become overwhelming for small companies.

All PEOs manage essential functions like benefits, payroll, and compliance, but the specific services they offer and how they deliver them can vary significantly.

When choosing a PEO, cash-conscious startups often prioritize cost. However, it’s equally important to understand the type of PEO you’re partnering with. The right partner can help you support your top early-stage priorities and build a strong foundation to attract and retain the talent needed to reach your next stage of growth.

Eventually, your company and team will outgrow a PEO and bring more HR and benefits functions in-house. That’s why it’s also important to know how a PEO can help you make a smooth transition when the time comes.

To help you choose the best fit for your organization, here’s an overview of the three types of PEO models you need to know: traditional, transactional, and strategic.

What is a Traditional PEO?

A traditional PEO forms the foundation of all other PEO models. Serving companies of various sizes and industries, this type of PEO focuses on basic HR functions, administering standard benefits, and connecting with clients during scheduled touch points throughout the year. 

The availability of a dedicated service team and technology can vary by provider, and not all traditional PEOs have processes in place to easily support a straightforward transition to in-house HR and benefits teams. 

Best for: Companies who don’t require in-depth industry expertise from their PEO, need basic HR services with conventional benefits, and have slower growth trajectories.

What Is a Transactional PEO?

A transactional PEO offers companies a software-only approach to managing HR and benefits processes. Small HR teams can benefit greatly from a transactional PEO if they have the time and expertise to make informed decisions for their companies.

Because transactional PEOs operate primarily through their platforms, clients are typically routed to a general service team or to email support when they have questions.  

Some transactional PEO platforms can also help companies manage employee compensation. However, like with benefits, clients must have in-house expertise to achieve the best results.

Many companies choose this model because of the upfront financial savings a self-service portal can provide. However, because of the lack of personalized support, outgrowing a PEO and transitioning processes to in-house teams can be complicated.

Best for: Companies seeking a software-only approach that can be managed by a knowledgeable internal team and are comfortable with support from a pool of customer service representatives.

What Is a Strategic PEO?

Strategic PEOs combine guidance, technology, and personalized support to help companies scale. They typically specialize in certain company sizes and industries and offer compensation and equity strategies in additional to traditional PEO services.

This type of PEO offers designated service teams who partners with clients as frequently as they need. Both the service teams and clients use the same technology for better alignment on goals and strategies.

And when companies scale and are no longer in need of a PEO, strategic PEOs often offer the most comprehensive plan for supporting clients who are ready to move processes in-house.

Best for: Companies looking for tailored, industry-specific guidance on HR, benefits, compliance, compensation, and equity, integrated software, and a dedicated service team.

Need Helping Choosing the Right PEO for Your Company?

Each of the three types of PEO models have their benefits and work well with various businesses depending on their people needs and growth goals. For PE- and VC-backed companies, goals often revolve around optimizing burn rates and extending runway. The deep expertise of a strategic PEO team creates a strategic partnership that enables both goals to be achieved.

As a strategic PEO, Sequoia One specializes in partnering with PE- and VC-backed companies who want to build a smart foundation for growth by optimizing their total people spend — benefits, compensation, and equity. Let’s see which type of PEO suits your people needs best.