If the PEO is paying wages to the owners this needs to stop.  Please Google this.  Way too many problematic issues to deal with.

But for reporting purposes whether you list it in COGS or Other Expenses it is irrelevant to the bottom line.  It's just classification.  I've seen titles such as PEO Paid Labor as an example of one title.

Remember, do NOT put any PEO onto any salary line (officer or other) as then the IRS will not be able to match it to any W-2's.  Your client never issued any W-2's, the PEO did.