People confuse PEOs and staffing agencies all the time. Both involve a third party and your workforce. But a PEO vs staffing agency comparison reveals two completely different models.
A staffing agency finds and supplies workers you do not have yet. A PEO (Professional Employer Organization) handles HR, benefits, and compliance for the workers you already employ. To start with the basics, see our guide to what a PEO is. This guide breaks down the difference between the two models, explains what each one costs, and helps you decide which approach fits your business.
What a PEO Does
A PEO partners with your business to manage the administrative side of employment. You hire your own people. You manage them day-to-day. The PEO takes over payroll, benefits, workers’ compensation, and compliance paperwork through a relationship called co-employment.
Co-employment means two organizations share employer responsibilities for the same workers. You control hiring, firing, job duties, and daily management. The PEO handles payroll taxes, benefits enrollment, regulatory filings, and HR support. For a detailed breakdown, see our guide to how a PEO works.
The PEO does not supply workers. It does not recruit for you. It does not place temporary staff at your office. Every employee under the PEO arrangement is someone you hired directly.
What makes a PEO valuable for small businesses is group buying power. The PEO pools employees from hundreds of client companies to negotiate health insurance, dental, vision, and 401(k) plans at rates a 20-person company could never get alone. For a full list of services, see what a PEO does.
What a Staffing Agency Does
A staffing agency (also called a temp agency or staffing firm) supplies workers to your business. The agency recruits, interviews, and hires the workers. Those workers are the agency’s employees, not yours.
Plain English: when you use a staffing agency, you are not hiring employees. You are buying a service. The agency sends people to work at your location, and you pay the agency for their time.
What a typical staffing agency handles:
- Recruiting and screening candidates
- Hiring the worker onto the agency’s own payroll
- Paying the worker’s wages and withholding taxes
- Filing W-2s under the agency’s tax ID (not yours)
- Providing workers’ compensation coverage for its employees
- Managing unemployment claims for its workers
The three most common staffing arrangements:
- Temporary: the worker fills a short-term need (a few weeks to several months)
- Temp-to-hire: the worker starts as a temp, and you evaluate them before making a permanent offer
- Direct placement: the agency recruits a candidate for a permanent role, and you hire them directly (the agency collects a one-time placement fee)
The American Staffing Association reports that staffing firms employ roughly 2 million workers per week in the United States, with about 9.5 million temporary and contract employees hired annually (ASA, 2025).
The Core Difference: Your Employees vs Their Employees
This is the simplest way to understand PEO vs staffing agency:
- PEO: your employees, their HR infrastructure
- Staffing agency: their employees, your workplace
With a PEO, every worker is someone you found, interviewed, and decided to hire. The PEO becomes the co-employer for administrative purposes. You keep full control of day-to-day management, work assignments, and termination decisions. For a closer look at how this split works, see our guide to PEO responsibilities vs employer responsibilities.
With a staffing agency, the agency finds the worker, puts them on the agency’s payroll, and assigns them to your location. You direct their daily work, but the agency handles pay, taxes, benefits (if any), and employment paperwork. If you want to let the worker go, you tell the agency. The worker goes back to the agency’s bench, not to your unemployment account.
People sometimes confuse PEOs with employee leasing companies, which is a different arrangement. For a breakdown of that distinction, see our guide to PEO vs employee leasing.
| Feature | PEO | Staffing Agency |
|---|---|---|
| Whose employees? | Yours (you hire them) | The agency’s (they hire them) |
| Who manages daily work? | You do | You direct work, agency handles admin |
| Employer of record | Shared (co-employment) | The staffing agency |
| Benefits access | Large-group health, dental, 401(k) | Varies; agency may offer limited benefits |
| Workers’ comp | PEO’s master policy covers your team | Agency covers its own workers |
| Cost structure | $40-$160/employee/month admin fee | 25%-75% markup on hourly rate |
| Best for | Permanent team needing HR support | Temporary or project-based staffing |
| Contract length | Ongoing (annual contract typical) | Per-assignment or per-project |
Services and costs vary by provider. A PEO fee is in addition to your normal payroll. A staffing agency bill rate replaces your payroll for the workers it supplies.
How to Decide: PEO vs Staffing Agency
The choice depends on what problem you are trying to solve.
Choose a PEO when:
- You have a permanent team and need HR infrastructure (benefits, compliance, payroll)
- You want access to large-group health insurance rates for your existing employees
- You are growing into multiple states and need compliance support
- You do not have an HR department and the owner is managing everything
- You want to reduce your workers’ compensation costs through pooled risk
Choose a staffing agency when:
- You need extra workers for a specific period (seasonal rush, a project, covering a leave)
- You want to evaluate someone before making a permanent hire (temp-to-hire)
- You do not want the employment liability for temporary positions
- You need workers fast and do not have time to recruit yourself
- You need specialized skills for a short-term project
Many businesses use both. A PEO covers the permanent team, and a staffing agency fills temporary gaps. The two models are not competing. They solve different problems.
What Each One Costs
A PEO charges an administrative fee on top of your normal employee compensation. You still pay your employees’ wages directly. The PEO fee covers the HR services, benefits access, and compliance support.
Typical PEO costs: $40 to $160 per employee per month, or 2% to 12% of gross payroll. For a 20-person company, that works out to roughly $800 to $3,200 per month for the full HR, benefits, and compliance package. Use our PEO cost calculator to estimate your numbers.
A staffing agency charges a markup on the worker’s hourly rate. You pay one bill rate to the agency, and the agency pays the worker’s wages, taxes, and insurance out of that amount.
Typical staffing agency markups: 25% to 75% of the worker’s hourly pay, depending on the role and industry. For a worker earning $25 per hour, you would pay the agency roughly $31 to $44 per hour. The markup covers the agency’s costs for payroll taxes, workers’ comp, overhead, and profit.
The cost structures are fundamentally different. A PEO adds a fee to your existing payroll. A staffing agency replaces your payroll entirely for the workers it supplies. You cannot compare them dollar-for-dollar because you are buying different things.
Businesses using a PEO see an average ROI of 27.2% from cost savings alone, largely driven by lower benefits and workers’ comp rates (NAPEO/McBassi, 2019). Use our PEO savings calculator to model your potential savings.
You can also see how many HR hours a PEO could free up with our time savings calculator.
The Bottom Line
A PEO handles HR for the employees you already have. A staffing agency supplies employees you do not have yet. They are different tools for different problems, and many businesses use both.
If you have a permanent team and need help with benefits, payroll, compliance, and HR support, a PEO fills that gap. You can browse providers in our PEO directory to see which ones serve businesses like yours.
Request a free consultation through our brokerage team to compare PEO proposals for your specific situation. The process takes several business days and costs you nothing. PEO providers compensate our brokerage team directly.
