What is a Professional Employer Organization (PEO)?
If you are unfamiliar with the term “PEO” the first question that usually comes to mind is, “What is a PEO?” and what does it mean to my company? A Professional Employer Organization or PEO is a business entity that provides human resources outsourcing services to client companies through the construct of a co-employment relationship. The PEO relationship also involves a contractual sharing of employer responsibilities between a PEO and the client. This shared liability relationship is often referred to as “co-employment” or "shared-employment."
How does the relationship work?
In the PEO relationship, the PEO partner is designated as the Administrative employer while the client retains the Worksite employer responsibilities. This is so much more than a vendor/customer relationship and is more accurately described as a joint liability partnership. Due to the PEO model and infrastructure, a PEO client can achieve greater operational efficiencies while effectively lowering their total cost of employment by leveraging economies of scale that may otherwise not be achieved on their own. By partnering with a PEO, a company will also achieve accelerated business growth, while mitigating employer-related liabilities exponentially. For more information, view NAPEO white-paper, “PEOs: Good for Businesses and Their Employees”
What are the roles of each party?
Below we outline the different roles held by each employer in the PEO relationship:
Client remains responsible for directing and controlling all daily activities of the worksite employees.
Client remains accountable for ensuring a safe work environment.
Client remains accountable for keeping track of actual hours worked and reporting those hours to the PEO for processing.
Client is accountable for making sure payroll funds are paid to the PEO.
PEO partner becomes responsible for the payment of wages in the co-employment relationship, as well as the management of workers’ compensation claims and various other administrative functions related to the worksite employees.
PEO partner assists with regulatory and compliance-related issues.
PEO partners can give managers the best practices and recommendations on the proper termination procedures, disciplinary procedures, and much more.
PEO partner typically provides the client with workers compensation, unemployment insurance, Employment Practices Liability Insurance (EPLI).
PEO partner typically provides clients with health insurance, a 401(k) Retirement Plan, a Section 125 Plan, voluntary insurance products, and a broad range of other employee benefits programs.
For more PEO information, visit the Value of a PEO page.
Is PEO right for your company?
The PEO model is an extremely popular choice for owners of small and medium-sized businesses who want to focus more time on their key business initiatives and less on administrative and compliance-related tasks. If you think a PEO partnership might be right for your business, Request A Consultation today!