PEO in California [2024]

A professional employer organization (PEO) can help small to mid-sized businesses reduce their administrative HR demands—streamlining and automating many HR functions like payroll services, benefits administration, compliance management, and workers’ compensation insurance—all while allowing businesses to provide their employees with access to better, more affordable benefits.

There are many reasons why a California-based business could benefit from using a PEO service. For starters, it’s no secret that the Golden State can be expensive for business owners; from sky-high business taxes to the higher-than-average cost of living, many small businesses in California could use the more affordable benefits and HR cost savings a PEO can provide.

Before choosing a PEO, though, it’s important to carefully evaluate your options—and this article can help. From automatic state tax registration to remote laptop management, Rippling PEO makes it easy to hire and onboard people in California and across the US.

Benefits of using a PEO in California

Using a California PEO can mean reducing administrative HR work, providing access to more cost-effective benefits, gaining valuable support and expertise, and more.

Offload administrative HR work

When you join a PEO, it co-employs your workforce, meaning you and the PEO divide employer responsibilities. Under a co-employment relationship, you become the worksite employer, which means you keep all authority over who you hire (and let go), how much you pay them, and your company’s overall strategy and business operations—like research and development, marketing, sales, and customer support.

On the other hand, the PEO becomes the administrative employer, which means they employ your workers under their federal tax identification number (EIN). This allows the PEO to take over employment-related human resources work, including payroll, managing benefits, handling HR compliance, and more. 

PEOs often use a combination of technology, expertise, and established processes to streamline HR management. And without all that administrative, manual work on their plates, your HR team is freed up to focus on more important strategic work that drives business outcomes for your company.

Better employee benefits, at a lower price

According to the National Association of Professional Employer Organizations (NAPEO), there are over 500 PEOs across the US, co-employing 4.5 million workers at 200,000 businesses. Because each PEO “employs” so many people from numerous companies, they have the bargaining power to negotiate with insurance providers to help you gain access to lower-cost benefits.

PEOs also use these economies of scale to provide access to robust benefits plans for the employees of those businesses. Many PEOs offer access to health insurance, life and disability insurance, worksite benefits, mental health support, retirement plans, commuter benefits, dependent care, and more. While these attractive benefits help companies recruit and retain top talent, it can be difficult for small businesses to offer them on their own.

The Affordable Care Act (ACA) requires businesses with 50 or more full-time employees to provide health insurance benefits. In California, the Insurance Equality Act requires in-state employers providing healthcare plans to also offer equal coverage to their employees’ spouses and registered domestic partners. A PEO can help California businesses deliver on the healthcare benefits they’re required to provide—plus other benefits employees want and need—often at more affordable rates than they could secure on their own.

Worry-free compliance with California laws

A PEO can help you comply not only with federal labor and employment laws but also with state-level and local California laws, which are complex and constantly changing. Take California’s minimum wage, for example. The statewide minimum wage is $15.50 per hour (double the federal minimum wage), but many cities and counties in California have an even higher minimum than the state:

Keeping up with different minimum wages—especially if you have remote employees in different locations across California (or the US)—is tricky. A PEO like Rippling will automatically flag minimum wage violations based on employees’ locations, ensuring you never violate local laws.

PEOs offer legal and compliance support for much more than just minimum wage regulations. They can help you maintain compliance with:

• Payroll regulations, including classifying employees and contractors correctly; issuing and filing tax forms; reporting, collecting, and depositing payroll taxes with the correct authorities at the right times; and complying with other wage laws, such as overtime requirements
• Benefits laws, including helping you follow California’s paid sick leave laws, as well as federal laws like the Affordable Care Act (ACA), COBRA, FSA, HSA, and any other benefits-related regulations
• Labor laws, including supplying workers’ compensation insurance, helping you follow Equal Employment Opportunity (EEO) laws, and displaying state-required labor posters

Violating any of these laws can result in costly fines and penalties—and the IRS estimates that 40% of small businesses pay payroll penalties each year—so compliance support is a significant benefit of using a PEO service.

Dedicated support team

PEOs are HR experts. When you join one, you gain access to that expertise—which can be especially helpful for small businesses and startups that don’t have similar resources internally. Your PEO can help you save time and money but also offer guidance on streamlining benefits administration, creating an employee handbook, training managers, reviewing your safety practices, and any other obstacles your HR team may face.

What to consider when evaluating a PEO service in California

There are many PEO services to choose from in California. When evaluating different PEOs to find one that’s right for your business, consider these criteria:

• Your business needs. What do you need from your PEO? Some common PEO offerings include:
• Payroll processing
• Tax filing and compliance
• Benefits administration
• Recruiting and onboarding
• Safety compliance and risk management
• Time and attendance tracking
• Regulatory compliance
• HR outsourcing
• Your budget. Different PEOs use different pricing structures—typically, they charge either per-employee per-month fees or a percentage of each payroll run. Keep in mind that if your business has plans to grow or scale in the future, you’ll need to consider whether you’ll be able to continue to afford the PEO as your headcount increases.
• Experience and reputation. Has the PEO worked with other California businesses before? Is it well-regarded? Consider checking review sites like G2 and Capterra to see what past and current clients say about their experience with the PEO.
• Benefits. Explore the quality, range, and cost of benefits plans the PEO offers. Make sure they align with your employees’ wants and needs.
• Benefits renewal rates. Is the PEO transparent about how much its benefits plans increase in cost after the first year? Some PEOs jack up renewal rates, sticking businesses with unexpected costs—or the hassle of finding a new PEO after just one year. Look for a PEO that publicizes how its rates change, so you can predict those potential increases.
• Integrations. How will the PEO integrate with your existing systems, tools, and technology?
• Does the PEO specialize in certain industries? If your business is in a niche industry, finding a PEO with experience in the field can be helpful.
• Does the PEO specialize in certain legal or compliance issues? If your business needs to meet specific federal or state regulations or address other legal issues, it may be helpful to look for a PEO with specialized experience.
• Your exit strategy. Eventually, you may decide to leave the PEO—either because you want to move your HR processes in-house or because you choose to go with a different solution. Many PEOs are difficult to leave; they require you to painfully rip out all their systems and start over from scratch. Thinking about this eventuality before joining a PEO is a good idea.

Why Rippling PEO is the right choice for your California business

Rippling PEO is the first PEO to sync HR, IT, and Finance in one platform, so all your busy work becomes simple and streamlined—from 90-second onboarding to remote IT management. While most PEOs run on software built in the 1980s, Rippling runs on fast and easy-to-use modern software.

We handle all of your critical compliance tasks—like setting up state and local tax accounts and automatically flagging minimum wage and overtime violations—and help your team access Fortune 500-quality benefits at affordable costs.

With Rippling, you get:

• HR, IT, and Finance in one platform
• Powerful and customizable reporting on any employee data
• Tools for managing remote teams, including state and local tax registration, paperless onboarding, and app and device management
• Access to superior benefits plans, plus below-average, predictable renewal rates
• Automatic flagging for federal, state, and local compliance infractions, along with recommended plans to fix each one
• Automated risk management processes, including ACA and COBRA administration, anti-harassment training, and sending digital labor law posters to your employees
• Access to hundreds of HR resources, guides, and templates

And, if you ever decide to bring HR in-house, it’s easy to move on and off Rippling PEO. While other PEOs require a painful switching process, with Rippling, you can simply switch off the PEO and move seamlessly to our all-in-one workforce management platform. Your HR, payroll, and employee data stays stored in your account, your integrations with other systems remain intact, and your employees keep the same logins—so they can keep using Rippling the same way they know how.

FAQs about PEOs in California

What is a PEO, and how does it work?

A PEO is an organization that partners with a company to provide comprehensive HR solutions, including payroll, benefits administration, HR management, and compliance assistance. They typically use a co-employment model, where the PEO legally becomes the employer of the company’s workforce for tax purposes.

How does a PEO arrangement affect control over my employees?

Businesses retain control over day-to-day operations and management of their employees, while the PEO handles HR functions and employment-related HR work.

What is a Certified PEO?

A Certified PEO (CPEO) is a PEO that has satisfied certain IRS criteria related to its background, expertise, finances, and reporting. Certification is completely voluntary and doesn’t represent an endorsement by the IRS, but it shows that a PEO has passed a series of assessments. In the past, CPEO status could provide certain tax benefits to businesses, but today, the main advantages of PEO certification are largely obsolete.

What size company can benefit from a PEO?

While PEOs can serve businesses of all sizes, small to mid-sized businesses often benefit the most. PEOs can help them save on administrative costs by outsourcing manual HR tasks, freeing up their HR teams for more strategic work, and accessing high-quality benefits plans they may not have been able to get on their own.

How does a PEO charge for its services?

Costs vary based on the services provided and the number of employees. PEOs may charge a flat fee per employee or a percentage of the total payroll.

What is the implementation process, and how long does it take to go live?

Typically, the PEO will collect necessary information about your employees, such as payroll data, employment records, and benefits information. They will set up their systems to handle your HR, payroll, and benefits administration. This includes integrating their technology with your systems, if necessary. They may conduct sessions to onboard your employees, explain the new processes and benefits, provide training to your team on how to use their systems, and offer ongoing support.

The entire process can take anywhere from a few weeks to a couple of months, depending on the size of your business and the complexity of the services required.

Are PEOs regulated?

Yes, PEOs are subject to both federal and state regulations, and many choose to be accredited by industry organizations for additional credibility.

Are PEOs in California required to have special certifications or licenses?

While there's no specific California license for PEOs, they must comply with state regulations governing employer-employee relationships.

What happens if I want to terminate my relationship with a PEO?

With most PEOs, ending the relationship requires removing the PEO systems from your business, which is a painful, inefficient, and disruptive process. Then, you must find new systems for payroll processing, benefits administration, and any other processes the PEO handled for you.

With Rippling PEO, moving off the PEO is as simple as switching it off and moving to our all-in-one workforce management platform, leaving all your systems, data, and integrations intact.

In what states is Rippling PEO available?

Rippling PEO is available in all US states.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.