What Is A PEO? | What Is A Professional Employer Organization?

In the relationship among a PEO, a worksite employee, and a client company, there exists a co-employment relationship in which both the PEO and client company have an employment relationship with the worker. The PEO and client company contractually allocate some and share other traditional employer responsibilities and liabilities. The PEO assumes responsibility and liability for the “business of employment” including risk management, human resources, labor law compliance, payroll, and employee taxes. The client company manages product development and production, marketing, sales and service. The PEO assumes and establishes an employment relationship with the worksite employee and provides a complete human resource and employee benefit package.

What is the difference between temporary staffing services and a PEO?

A temporary staffing service recruits employees and assigns them to clients to support or supplement the client’s workforce in special situations. In a PEO arrangement the client recruits its own employees with the PEO handling the background screening and employment administration.  A PEO arrangement involves all or a significant number of the client workplace employees in a long-term, non-project-related, employment relationship. The PEO assumes the employer responsibility for employment tax, benefit plans and other human resource purposes.

Why would a business use a PEO?

All business owners want to focus their time and energy on the “business of their business” and not on the “business of employment.” Most business owners don’t have the necessary human resource training, payroll and accounting skills, knowledge of regulatory compliance, or background in risk management, insurance and employee benefit programs to meet the demands of being a good employer. PEOs provide economy of scale for quality employee benefits including health insurance, 401(k) plans, plus provide aggressive workplace risk management. Job satisfaction and productivity increase when workers are provided quality human resource services.

In a PEO arrangement, does the business owner lose control?

Absolutely not. As co-employers, the PEO and client/business owner become partners in the employment of their workers. The client retains ownership of the company and manages the day-to-day activities of the employees. As co-employers, the PEO and the client contractually share or assume employer responsibilities and liabilities.

What responsibilities are assumed by the PEO

PEOs assume responsibility and liability for payment of wages and compliance with all the rules and regulations governing the reporting and payment of federal and states taxes on wages paid to its employees. The IRS recognizes the PEO as the employer for federal income and unemployment taxes. The PEO also assumes the responsibility and liability for payment of state unemployment and state income taxes. The PEO assumes responsibility for providing and administering the workers’ compensation coverage for its employees. In most cases, the PEO will also assume the responsibility for providing and administering the employee benefits.


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