What is a PEO in California? [2025]

Q: What is a PEO and how does it work?

A PEO partners with businesses to manage HR tasks like payroll, benefits, and compliance. Through a co-employment relationship, the PEO handles administrative duties while the business retains control of daily operations.

Q: Do PEOs take control of business operations?

No. PEOs do not control business operations. They handle HR and compliance tasks, while you maintain full authority over business management and decisions.

Q: What size company can benefit from a PEO?

Businesses of all sizes can benefit, but PEOs are especially valuable for small and midsized companies that need HR support and affordable benefits.

Q: How much does a PEO cost per employee in California?

The cost varies based on services and company size. Many PEOs charge a percentage of payroll. FrankCrum provides transparent pricing to help you assess value and ROI.

Q: Are California PEOs regulated?

While California lacks a specific licensing program for PEOs, they must comply with state labor, tax, and insurance laws, including oversight by DIR, EDD, and Cal/OSHA.

As of 2025, California is home to 4.3 million small businesses, and nearly 99% of all businesses in the state fall into this category. Every one of these businesses has to deal with nearly 20 state leave laws, complicated workers' compensation requirements, and constantly changing employment laws. The vast number of businesses highlights the critical need for effective HR solutions that can keep pace with California's dynamic legal landscape.

Whether you run a construction company in Los Angeles, a landscaping business in San Diego, or a professional office in San Francisco, you need help keeping up with all the rules without taking time away from running your business.

This guide will show you how a PEO can take the busy work off your plate so you can focus on what you do best: growing your business and taking care of your customers.

Key Takeaways

Partnering with a PEO can reduce HR-related expenses by up to 27.2% (NAPEO 2019 ROI study). That means more money in your pocket to invest back into your business.

PEOs know California's labor laws inside and out. They help you avoid expensive fines and legal problems that can hurt your business.

A California PEO, like FrankCrum, makes sure you have the right workers' comp coverage at an affordable price and handles claims for you. This keeps you out of trouble with the state and protects your business from big penalties.

Understanding PEO Services in California

When you partner with a California PEO, you share some employer duties with them. Think of it like having a business partner who handles the back office work. The PEO takes care of payroll, health insurance administration, workers' comp, and makes sure you follow the rules. You stay in charge of your daily work and managing your team.

This setup lets you tap into expert HR help without losing control of your business. The PEO becomes the employer of record for taxes and insurance, which cuts down on paperwork and legal risks. This means you can spend more time with clients or growing your business instead of sitting at a desk pushing paper.

Additionally, partnering with a Professional Employer Organization (PEO) in California offers significant benefits for managing workers' compensation. When you work with a PEO, your employees are covered under the PEO’s workers’ compensation insurance policy, which is provided by licensed and reputable carriers approved by the California Department of Industrial Relations.

This does two big things for you. First, it keeps you legal with state laws. Second, it makes dealing with claims much simpler. The PEO handles the paperwork, reports, and payments. Many PEOs also offer pay-as-you-go plans that help your cash flow. You get access to safety programs and risk help that can cut down on injuries and lower your insurance costs.

Core Services offered by California PEOs

Human Resources Support:
Facilitating employee onboarding through their HR technology, providing performance management guidance, and maintaining up-to-date employee handbooks to ensure compliance with California’s job laws.
Payroll Services:
Managing payroll functions from start to finish, including processing, tax filings, timekeeping, wage garnishments, and certified payroll reporting to guarantee accurate and timely compensation.
Benefits Management:
Administering a variety of employee benefits such as health insurance, dental, vision, disability coverage, retirement plans, and employee assistance programs to streamline benefits enrollment and management.

Regulatory Compliance:
Navigating tricky California wage and hour laws, E-Verify requirements, Cal/OSHA regulations, and leave entitlements under laws like CFRA and FMLA to minimize legal problems and make sure you are doing things right.
Risk Mitigation:
Implementing employment liability insurance (EPLI) to protect you from employee lawsuits and customized workplace safety initiatives to protect your organization from potential workplace hazards.
Workers' Compensation Coverage:
PEOs often provide workers’ compensation coverage with flexible payment options, such as pay-as-you-go, to protect your cash flow. They also manage claims by handling reporting, documentation, and communication with carriers.

Key Benefits of Partnering with a PEO for California Employers

Running a business in California means dealing with high costs, strict rules, and tough competition for good workers. A PEO can make your life easier by handling HR, payroll, benefits, and workers' comp insurance for you.

Research from the National Association of Professional Employer Organizations (NAPEO) shows that companies working with a PEO get back $1.27 for every dollar they spend. That's a 27.2% return on your investment. Plus, your workers are less likely to quit. For business owners, this is one of the best ways to make your business stronger and help it grow.

Advantages of Partnering with a PEO:

Cost Category	Managing HR Independently	Partnering with a PEO (Industry Averages)	Potential Savings (%)
Payroll Processing	$1,200 per employee/year	$850 per employee/year	29%
Employee Benefits	$5,000 per employee/year	$3,600 per employee/year	28%
Workers’ Compensation	$1,500 per employee/year	$1,050 per employee/year	30%
HR Compliance & Risk Mgmt	$900 per employee/year	$520 per employee/year	42%
Total Annual Cost	$8,600 per employee/year	$6,020 per employee/year	30%

State Licensing and Coverage

Make sure the PEO is registered with the California Department of Industrial Relations (DIR) and can work across the state. California requires PEOs to meet certain financial and regulatory standards to protect employers and their workers.

Payroll Tax Know-How

California's payroll system includes state income tax, state disability insurance, unemployment insurance, and job training tax. Mistakes can lead to penalties of up to 10% of unpaid taxes. Pick a PEO that knows California payroll inside and out. They need to file everything right and on time. If you run prevailing wage jobs, make sure they can handle certified payroll reports correctly.

Valid Workers' Compensation Insurance

California imposes steep penalties for operating without workers' compensation insurance, up to $10,000 in criminal fines and one year in jail, plus civil penalties of up to $100,000 for willful violations. Confirm your PEO maintains valid coverage through a licensed carrier approved by the DIR.

Range of Services

Look at what HR services they offer. You need payroll processing, benefits help, compliance support, risk management, and help bringing on new workers. Make sure they cover what your business needs to run smoothly.

Good Benefits Packages

Don't just look at costs. Find a PEO that offers big-company benefits with access to top-rated insurance carriers. California's job market is tough, and better benefits help you keep good workers. There are even benefits that can be offered at no cost to the employer.

Know the Rules

A good California PEO should watch for new laws like Assembly Bill 5 (AB 5) about independent contractors, the California Family Rights Act (CFRA) about leave rights, and Pay Data Reporting rules. Ask how they keep track of new labor laws, tell clients about changes, and make sure your HR practices stay legal.

Technology That Works

You need HR technology tools that make life easier for you and your employees. Look for a PEO with mobile-friendly access, online employee onboarding, easy benefits enrollment, and good reporting.

By carefully weighing these factors, California businesses can partner with a PEO that delivers comprehensive, compliant, and cost-effective HR solutions tailored to their unique needs and growth objectives.

FrankCrum distinguishes itself with white-glove service and a 91% customer retention rate, making it a trusted partner for businesses across the state. Nine out of ten customers are happy with our service and most of them stick with us year after year. That's because we give you the personal attention that California businesses need to do well.

Comprehensive Payroll Processing: PEOs manage all aspects of payroll. They figure out wages, take out taxes, file payroll taxes with federal and state agencies, and get your workers their paychecks or direct deposits.
Payroll Tax Compliance: They make sure your business follows California's payroll tax rules. This includes state income tax, unemployment insurance, disability insurance, and job training tax. This helps you avoid expensive penalties.
Time and Attendance Tracking: PEOs often give you technology tools to track worker hours, overtime, and time off. This makes sure payroll numbers are right and you follow California's wage and hour laws.

Bringing on New Workers: PEOs help with hiring by handling work checks (I-9 forms), background checks, and filling out all the needed paperwork. This makes hiring faster and easier.
Benefits Help: They set up employee benefits sign-up and management. Payroll deductions for health insurance, retirement plans, and other perks are smoothly worked in.
HR Administration and Support: PEOs give you expert advice on HR rules, dealing with workers, tracking performance, and staying legal with California-specific labor laws.
Handling Wage Garnishments and Deductions: PEOs manage court-ordered wage garnishments and other payroll deductions correctly and privately.

What Types of Benefits do PEOs Offer in California?

Partnering with a California PEO gives your business access to a wide range of employee benefits that might be hard or expensive to get on your own. PEOs use their large client base to get better rates and complete packages. This helps you attract and keep good workers, even in a tough market.

Common benefits offered by California PEOs include:

Health Insurance

You get access to group health plans with medical, dental, and vision coverage. Often at better rates than small businesses can get by themselves.

Retirement Plans

Options like 401(k) plans help your workers save for their future and feel better about their jobs.

Disability and Life Insurance

Short-term and long-term disability coverage, plus life insurance options, give your workers and their families money protection.

Employee Assistance Programs (EAPs)

Support services like counseling and mental health help promote your workers' overall well-being.

Paid Time Off (PTO) and Leave Management

Help managing vacation, sick leave, family leave, and other California-required leave policies.

Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs)

Tax-advantage accounts that help workers manage healthcare and dependent care costs.

When you offer these benefits through a PEO, your California business can give out packages that help attract good workers, cut HR costs, and make workers happier. All while making sure you follow state rules.

FrankCrum's benefits platform, bswift, has a smart AI helper called AskEmma. It guides your workers step-by-step through benefits sign-up. The platform cuts down on office work by answering common benefits questions, explaining plan details, and helping workers make smart choices. This means fewer questions for you and workers who feel more confident about their benefits.

Workers' Compensation & Risk Management with a PEO

California approved advisory pure workers' comp premium rates averaging $1.52 for every $100 in payroll as of September 2025 — that's among the highest in the nation. This serves as a benchmark or guideline, but actual insurer rates (what employers pay) may be even higher. Managing these costs and risks can be tough for businesses. But working with a PEO offers helpful solutions made for California's unique rules. Key benefits of workers' compensation and risk management services through a PEO include:

Valid Workers' Comp Insurance: PEOs give you coverage through AM Best-rated carriers licensed by the California Department of Industrial Relations. This makes sure you follow state laws and protects your business from penalties, including criminal charges that can carry big fines.
Easy Claims Management: PEOs take care of claims reports, paperwork, and talking to insurance companies. This makes the process smoother and helps cut claim costs and office work.
Pay-As-You-Go Premiums: Some PEOs offer pay-as-you-go workers' comp plans. You pay premiums based on your actual payroll. This helps your cash flow and avoids big upfront payments.

Proactive Workplace Safety Programs: Custom safety training, checks, and risk reviews help prevent workplace injuries, cut insurance costs, and make sure you follow Cal/OSHA rules.
Risk Reduction and Compliance: PEOs help with regular safety checks, rule updates, and following California labor codes. This cuts down on legal problems and expensive fines.
Expert Advice on California Regulations: The PEO's know-how makes it easier to deal with California's complicated workers' comp laws and reporting needs. This cuts down on the risk of penalties for not following rules.

When you use the specialized workers' comp and risk management services of a PEO, you can control costs better, protect your people, and stay legal with tough state rules.

At FrankCrum, our affiliated carrier, Frank Winston Crum Insurance, offers great rates on workers' comp insurance for businesses of all sizes. We make sure you get solid coverage and support made for your needs. With pay-as-you-go options and no down payment needed, FrankCrum makes workers' comp coverage easy to get and affordable for California businesses.

How Can PEOs Help Navigate Legal and Compliance Issues in California?

California's job laws are some of the most complicated in the United States. They cover things like wage and hour rules, preventing harassment, family leave, and worker classification. PEOs give you expert legal advice to make sure you follow federal laws and California-specific rules.

For instance, California’s updates to meal and rest break laws resulted in costly lawsuits for non-compliant employers. PEOs help by updating policies and providing guidance to managers to stop violations.

When you partner with a PEO, you cut down on legal problems and expensive penalties from HR compliance issues. This lets California employers focus on growing their business with peace of mind.

Cost-Effectiveness of PEO Services

PEOs save you money by using their size and know-how to get lower insurance rates, cut unemployment tax rates, reduce office work, and stop expensive compliance mistakes.

They also help lower retirement plan costs through shared resources and simpler management. These savings let you put money back into growth plans and worker training.

Plus, when PEOs handle complicated HR work well, they make your work flow better. This lets you focus on your main priorities, which makes you more profitable and supports long-term success.

Choosing the Right PEO for Your Business Size & Industry

Picking the right PEO for your California business takes a smart approach. You want to make sure the partnership
fits your unique needs and growth goals. Here is a step-by-step guide to help you make a good choice.

Match Your Business to the Right PEO:

Define Your Business Needs

Look at your current HR problems, payroll needs, compliance worries, and benefits hopes. Understanding your company's size, industry, and future growth plans will show you what services you need from a PEO.

Research PEOs with California Expertise

Look for PEOs that have a proven track record working in California and know the state's complicated labor laws, workers' comp coverage, and rule needs inside and out.

Evaluate Service Offerings

Compare what services they provide. This includes payroll processing, employee benefits help, risk management, and HR compliance support. Make sure the PEO can adjust their solutions to fit your company's specific needs.

Check Customer Service and Support Quality

Check out how responsive and available the PEO's support team is. Good customer service, including dedicated account managers and real-time help, is key to a smooth partnership.

Review Technology and Reporting Tools

Think about the HR management and payroll platform they offer. Good technology that gives you real-time data, and easy access to payroll and benefits info can cut down on office work a lot.

Verify Licensing and Insurance Credentials

Make sure the PEO has all the needed California licenses and works with a valid workers' comp carrier that the California Department of Industrial Relations recognizes.

Assess Compliance and Risk Management Capabilities

Make sure the PEO knows California labor code compliance, risk-cutting strategies, and active workplace safety programs well. This protects your business from legal problems.

Request Case Studies

Ask for examples of how the PEO has helped businesses like yours. Look for stories or case studies that show cost savings, compliance improvements, and better employee benefits.

Compare Pricing Structures and Contracts

Understand the PEO's pricing setup, fees, and contract terms. Look for clear pricing. Make sure the partnership can grow with your business.

Plan for a Smooth Transition

Talk about how the setup process works, including telling workers, moving data, and training. A well-managed start with your PEO partner will keep disruption low and benefits high.

Why Choose FrankCrum for Texas HR Outsourcing?

FrankCrum offers a comprehensive PEO solution that includes payroll, HR, workers’ compensation, and employee benefits. But FrankCrum isn’t just any PEO—our commitment to service and expertise makes us a trusted choice among businesses searching for the best PEO providers. Here’s what sets us apart:

Top-Tier Customer Service:
9/10 customer satisfaction rating and a 91% retention rate.
Personalized Support:
We tailor our HR solutions to fit your business, combining white-glove service and innovative technology.
AM Best-rated Workers’ Comp Carrier:
We own our own carrier, providing discounts to businesses of all sizes.
Real People, Real Answers:
No frustrating phone queues—just real humans ready to help.
40+ Years of Experience:
We’ve been helping businesses grow since 1981.

What is a PEO and how does it work?

A PEO is a company that partners with businesses to manage HR tasks like payroll, benefits, and compliance. By entering a co-employment relationship, the PEO handles administrative responsibilities while the business retains control over day-to-day operations. This helps companies save time, reduce costs, and navigate complex employment laws more easily.

Do PEOs take control of business operations?

No, PEOs do not take control of your business operations. They enter into a co-employment relationship where they handle office tasks like payroll, benefits, and following rules. You keep full control over day-to-day management and business decisions. This partnership lets you focus on growing your business without giving up control.

What size company can benefit from a PEO?

Companies of all sizes can benefit from working with a PEO. But they're especially helpful for small to mid-sized businesses that may not have their own HR staff. Startups and growing companies get access to expert HR support, compliance help, and affordable employee benefits that might otherwise be out of reach. Even larger companies can use PEOs to smooth out HR tasks and cut down on office work.

How much does a PEO cost per employee in California?

The cost of a PEO in California varies depending on the level of services provided and the size of the business. Some PEOs may charge based on a percentage of total payroll. It's important to obtain customized quotes to understand the exact pricing tailored to your company's specific needs. FrankCrum provides clear pricing to help you understand the value and return on investment of our complete PEO services.

Are California PEOs regulated?

While California does not have a specific licensing or registration program for PEOs, the industry is still regulated through the state’s broader labor, tax, and insurance laws. PEOs operating in California must comply with requirements enforced by agencies such as the Department of Industrial Relations, Employment Development Department, and Department of Insurance, covering areas like workers’ compensation, payroll tax reporting, and wage and hour compliance. In practice, PEOs are often considered joint employers with their client companies, meaning they share liability for employment law violations even without a dedicated PEO statute.