Many leaders of small and medium-sized enterprises (SMEs) outsource human resource (HR) functions and activities to professional employer organizations (PEOs) to meet changing and complex HR challenges. Although most directors of SME-client organizations are satisfied with the results of HR outsourcing, employees’ perspectives regarding the effect of PEO presence on organizational culture and morale have not been considered. The purpose of this qualitative study following a phenomenological approach was to discover the perceptions of employees regarding organizational culture and morale in SMEs where PEO services are used. In-depth interviews were conducted with nine nonsupervisory employees of SMEs in central New York State conducting business with a PEO. Common themes in interviewee responses were identified. The key finding derived from the study was that participants did not perceive their PEOs as having a significant influence on either organizational culture or employee morale. Several key recommendations for future best practices will be offered.