Somewhere between 50 and 500 employees, a company crosses a series of federal lines. A health-coverage rule switches on at 50. A diversity report and a layoff-notice law switch on at 100. A few reporting rules follow at 250. A PEO, or professional employer organization, is an outside company that co-employs your staff and runs payroll, benefits and HR paperwork for you. It can keep doing that at this size. What changes is that more federal rules now apply to you, and several of them stay your job even with a PEO.

The short version

  • A PEO still works at 100 to 500 employees. It can run payroll, benefits and much of the paperwork. But most PEO clients are smaller: by the industry's own figures, almost two-thirds have 10 to 49 employees.
  • The catch: each federal rule counts employees in its own way, and several of the duties that start at these sizes stay yours even when a PEO is your co-employer. The rules hand the PEO only specific pieces.
  • What to do: use the table below to see which lines you have crossed, then ask the PEO in writing who files each report and under whose tax ID number.

If you have fewer than 50 employees, our guide to the best PEO for a small business fits you better. If you already think you have outgrown your PEO, start there.

Every rule counts employees differently

There is no single "employee count." Each law has its own.

  • The health-coverage rule (ACA). The Affordable Care Act's employer rule applies once you are an "applicable large employer," meaning 50 or more full-time employees, counting part-timers' hours too. Full-time means 30 hours a week or 130 hours a month. Part-timers are turned into full-time equivalents, where every 120 part-time hours in a month count as one: add up their monthly hours (no more than 120 per person) and divide by 120. You average the result over the previous year, and companies with a common owner are counted together.
  • Family and medical leave (FMLA). The leave law covers you once you have had 50 or more employees on every working day of at least 20 weeks, in this calendar year or last. A worker qualifies after 12 months with you and at least 1,250 hours worked in the past 12 months, at a site with 50 or more employees within 75 miles.
  • Layoff notice (WARN). The federal layoff-notice law covers employers with 100 or more employees, not counting part-timers. Or 100 or more including part-timers, if together they work at least 4,000 hours a week, not counting overtime. "Part-time" here means fewer than 20 hours a week on average, or fewer than 6 of the last 12 months on the job, so even a full-time new hire counts as part-time here.
  • Workplace injury reports (OSHA). The safety agency counts each workplace separately, and every person who worked there during the year counts as one, including part-time, seasonal and temporary workers. So staff turnover raises the count.
  • 401(k) audit. For a 401(k), the count is people with money in the plan at the start of the plan year (the 12 months the plan reports on, often the calendar year), not your headcount. It comes from the government's instructions for Form 5500, the plan's annual report.

Example with made-up numbers, to show how it works: all year, a company has 90 full-time staff working 40 hours a week and 40 part-timers who each work 60 hours a month, about 14 hours a week. For the health-coverage rule, the part-timers add 2,400 hours a month, which is 20 full-time equivalents. That makes 110, well over 50. For the layoff-notice law, the 90 full-timers alone are under 100. But all 130 people together work about 4,150 hours a week, which is over 4,000. So the law covers this company too.

A PEO does not add its other clients' staff to your count. Under a PEO, you and the PEO can both be legal employers of the same people; the rules call that being joint employers. For family leave, a client counts the PEO's other employees only if the client "jointly employed those employees", meaning those people work for the client too. In practice, your count is your own staff.

At about 120 employees, for example, the health-coverage rule, family leave, the EEO-1 report and the layoff-notice law all apply. The 401(k) audit and the online injury reports depend on how many people are in your plan and how big each site is. The table shows each line.

The lines at 50, 100, 250 and 500

This is the federal floor. States can add their own rules, at different sizes, so check yours.

What changes at each size, and what a PEO changes
HeadcountWhat startsHow it's countedUnder a PEOSource
50Health-coverage rule (ACA): offer coverage to full-time staff or risk a penalty; file Forms 1094-C and 1095-CFull-time staff plus full-time equivalents, averaged over last year; related companies combinedDecided by your own staff count, not the PEO's. The PEO's plan counts as your offer only if you pay the PEO more for an employee who enrolls. The forms are yours to file, though the PEO may prepare themIRS; 26 CFR 54.4980H-4(b)(2); IRS instructions for Forms 1094-C and 1095-C
50Family and medical leave (FMLA)50 or more employees in 20 or more weeks this year or lastWhen the PEO is a joint employer, you are usually the primary employer, the one mainly responsible: you give the notices, provide the leave and keep health benefits going29 CFR 825.104, 825.106
51, or 101 in some statesYour own health plan leaves the "small group" insurance marketFederal default for a small employer is 1 to 50; a state may raise it to 100Matters most when you compare the PEO's plan with buying your own. Ask whether your rate is set on the PEO's whole group or on your own staffCMS
100Workforce diversity report (EEO-1)Private employers with 100 or more employeesAsk whether the PEO files it or only gives you the dataEEOC
100Layoff notice (WARN): 60 days' notice of a closing or mass layoff100 or more not counting part-timers, or 4,000 hours a week including themPlan for it as yours20 CFR 639.1, 639.3
100 people in the plan401(k) audit: a "large plan" report with an independent accountant's reportPeople with account balances at the start of the plan yearIn a PEO's shared 401(k), the plan files one report and you don't file separatelyForm 5500 instructions (2025)
100 per workplace, in listed industries such as farming, manufacturing, warehousing, grocery stores, hospitals and nursing homesDetailed injury records (OSHA Forms 300 and 301) filed onlineEveryone who worked at that site during the yearYou keep the records if your managers supervise the work day to day29 CFR 1904.41, 1904.31
250 Forms W-2Health-coverage cost on each W-2 (Box 12, Code DD) becomes requiredW-2s filed the year beforeAsk whose W-2 count applies, yours or the PEO's: it decides whether the cost must be shownIRS
250 per workplaceYearly injury summary (OSHA Form 300A) filed onlineEveryone who worked at that site during the yearSame rule: you keep the records if your managers supervise the work day to day29 CFR 1904.41, 1904.31
500Layoff notice: cutting 500 or more jobs at one site counts as a mass layoff, whatever share of the staff that isEmployees affected, not counting part-timersPlan for it as yours20 CFR 639.3(c)

Federal rules only. Abbreviations: ACA is the Affordable Care Act, FMLA the Family and Medical Leave Act, WARN the Worker Adjustment and Retraining Notification Act, EEOC the Equal Employment Opportunity Commission, OSHA the Occupational Safety and Health Administration, CMS the Centers for Medicare & Medicaid Services, CFR the Code of Federal Regulations.

Notice what is missing at 500. Apart from that one layoff-notice detail, none of these federal rules has a line at 500 employees.

What a PEO takes over, and what stays yours

A PEO does not take on your legal duties wholesale. For each rule, the regulations say something narrower.

Health coverage at 50. Whether you are an "applicable large employer" is decided by the size of your own workforce. A PEO's health plan counts as your offer of coverage only if the fee you pay the PEO is "higher than the fee the client employer would pay the staffing firm for the same employee if that employee did not enroll". The idea is that if your fee goes up when someone enrolls, you are the one paying for that coverage. The rule says "staffing firm," and the IRS spelled out that this covers clients of "a professional employer organization or other staffing firm" when it wrote the rule. The yearly coverage forms are filed by the employer, which the IRS calls the "ALE Member": "An ALE Member must file" Forms 1094-C and 1095-C. Ask the PEO in writing who prepares them, under which tax ID, and how its fee meets the offer rule. Our guide to PEOs and the ACA goes further.

Family and medical leave at 50. A PEO that only handles payroll and paperwork is not a joint employer of your staff. When it is one, "the client employer most commonly would be the primary employer," meaning the employer mainly responsible. And "only the primary employer is responsible for giving required notices to its employees, providing FMLA leave, and maintenance of health benefits." So decisions about leave, and giving people their jobs back afterward, sit with you. The PEO can run the forms and the tracking.

The diversity report at 100. The EEO-1 report is required of "private sector employers with 100 or more employees". It lists your staff by job category, sex and race or ethnicity. Some PEOs prepare and file it; others hand you the data. Ask which. See PEOs and EEOC compliance.

Layoff notice at 100. A covered employer must give 60 calendar days' notice before a plant closing or a mass layoff. In this law, a plant closing means shutting down a site, or a unit at a site, so that 50 or more people lose their jobs within 30 days. A mass layoff means cuts at one site within 30 days of at least 50 people who are also at least a third of the staff there, or of 500 people or more, whatever the share. Part-timers are not counted in either. Treat this as your duty to plan for. Ask the PEO what, if anything, it does when a notice is needed, and talk to an employment lawyer before any layoff of 50 or more people at one site.

The 401(k) audit at 100 people in the plan. A plan with 100 or more participants at the start of the year files the longer "large plan" annual report, which normally needs an audit by an independent accountant. A plan with 80 to 120 participants can choose to file the same kind of report it filed last year. If your 401(k) is the PEO's shared plan, which serves many employers at once, "A single Form 5500 Annual Return/Report is filed for the multiple-employer plan; participating employers do not file individually." If you leave the PEO and start your own plan, your own participant count decides whether you need the audit. More in PEO 401(k) plans.

Injury records at 100 and 250 per workplace. For workers supplied by another company, OSHA's rule is direct: "You must record these injuries and illnesses if you supervise these employees on a day-to-day basis." If your managers direct the work, the injuries go on your log, not the PEO's. See PEOs and OSHA.

Health costs on W-2s at 250. Showing the cost of health coverage on each W-2 is optional for "Employers required to file fewer than 250 Forms W-2 for the preceding calendar year". Some PEOs file payroll tax returns under their own tax ID, which is why the count that matters could be the PEO's rather than yours. Ask whose W-2 count applies, and whether your employees' W-2s show the cost in Box 12, Code DD.

For the full split of duties under co-employment, see PEO responsibilities vs employer responsibilities.

Self‑funding: when it becomes common

As companies grow, more of them stop buying a standard insurance policy and pay their employees' medical claims themselves. That is called self-funding. The employer usually buys "stop-loss" insurance to cap a bad year. It also typically hires an outside company to run the plan. KFF, a health policy research group, says such employers "typically contract with a third-party administrator or insurer to provide administrative services for the self-funded plan". That arrangement is called administrative services only, or ASO.

KFF's 2026 survey shows how the share changes with size. These are shares of covered workers, not of companies:

Covered workers in self-funded health plans, by company size, 2026
Company size (workers)Share of covered workers in a self-funded plan
10 to 4919%
50 to 19929%
200 to 99962%
1,000 to 4,99982%

KFF Employer Health Benefits Survey 2026, Figure 10.1. KFF's size bands do not split at 500.

So somewhere in the 200-to-999 band, self-funding becomes what most covered workers have. That is why, at a few hundred employees, running your own plan becomes a realistic thing to compare against a PEO's plan. Smaller companies often use a halfway version called a level-funded plan, which KFF describes as "a relatively small self-funded component with stop-loss insurance". About 39% of covered workers at companies with 10 to 49 workers, and 38% at 50 to 199, are in one. KFF counts these separately from the self-funded figures in the table. Our guide to level-funded health plans explains how they work.

Size also changes which insurance market you are in. Federal law treats a "small employer" as one with 1 to 50 employees, and lets each state raise that to 100. In the small-group market, insurers can only vary prices by age (the oldest adults pay at most three times what the youngest pay), tobacco use, family size and location. Those limits apply only to the small-group market. Above your state's line, your plan is in the large-group market, where they don't apply. Check which line your state uses.

None of this means you should leave a PEO at a certain size. It means the questions get sharper. Ask the PEO:

  • Is our health plan fully insured, level-funded or self-funded?
  • Is our rate set on the PEO's whole group or on our own staff?
  • Can we see our claims data?
  • How has our rate changed at each renewal?

For how PEO plans work, see how PEO benefits work and PEO health insurance. To compare a PEO with running your own plan through an ASO, see PEO vs ASO and ASO vs HRO vs PEO.

Questions to ask a PEO at 100 to 500 employees

  1. Which legal company is our co-employer, and is it on the IRS list of certified PEOs? A certified PEO is generally solely liable for federal employment taxes on the wages it pays. See what IRS certification means.
  2. Who files our Forms 1094-C and 1095-C, our EEO-1 report and our 401(k) plan's Form 5500, and under whose tax ID? Can we see copies of last year's?
  3. Is your fee higher for an employee who enrolls in health coverage than for one who doesn't? That is the health-coverage offer rule above.
  4. Are you registered in every state where we have employees? See multi-state PEOs.
  5. Who keeps our OSHA injury records, and who files them online?
  6. What do you do, and not do, if we have to give a layoff notice?
  7. What are the exit terms and the notice period? See PEO contract terms and leaving a PEO.

The bottom line

At 100 to 500 employees, a PEO can still carry the paperwork. Several of the legal duties that start at 50, 100 and 250 are still yours, and the rules spell out a narrow share for the PEO. Get the split in writing before you sign or renew.

If you would like help comparing PEOs at your size, we can connect you with our independent broker, a separate business that gathers quotes from several PEOs. Request a Consultation through our PEO quotes page. It takes several business days, because the broker works from your actual employee list. The consultation is free to you. If you sign through the broker, he shares part of his fee with us.

Sources