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Professional employer organizations (PEOs) enable clients to cost-effectively outsource the management of human resources, employee benefits, payroll and workers' compensation. PEO clients focus on their core competencies to maintain and grow their bottom line.
Businesses today need help managing increasingly complex employee related matters such as health benefits, workers' compensation claims, payroll, payroll tax compliance, and unemployment insurance claims. They contract with a PEO to assume these responsibilities and provide expertise in human resources management. This allows the PEO client to concentrate on the operational and revenue-producing side of its operations.
A PEO provides integrated services to effectively manage critical human resource responsibilities and employer risks for clients. A PEO delivers these services by establishing and maintaining an employer relationship with the employees at the client's worksite and by contractually assuming certain employer rights, responsibilities, and risk.
Businesses across America have discovered the incredible value of PEOs because they provide:
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Relief from the burden of employment administration. |
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A wide range of personnel management solutions through a team of professionals. |
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Improved employment practices, compliance and risk management to reduce liabilities. |
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Access to a comprehensive employee benefits package, allowing clients to be competitive in the labor market. |
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Assistance to improve productivity and profitability. |
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The PEO relationship involves a contractual allocation and sharing of employer responsibilities between the PEO and the client. This shared employment relationship is called co-employment.
As co-employers with their client companies, PEOs contractually assume substantial employer rights, responsibilities, and risk through the establishment and maintenance of an employer relationship with the workers assigned to its clients. More specifically, a PEO establishes a contractual relationship with its clients whereby the PEO:
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Co-employs workers at client locations, and thereby assumes responsibility as an employer for specified purposes of the workers assigned to the client locations. |
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Reserves a right of direction and control of the employees. |
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Shares or allocates with the client employer responsibilities in a manner consistent with maintaining the client's responsibility for its product or service. |
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Pays wages and employment taxes of the employee out of its own accounts. |
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Reports, collects and deposits employment taxes with state and federal authorities. |
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Establishes and maintains an employment relationship with its employees that is intended to be long term and not temporary. |
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Retains a right to hire, reassign and fire the employees. |
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Businesses today need help managing increasingly complex employee related matters, including employee relations, health benefits, workers' compensation claims, payroll, payroll tax compliance, and unemployment insurance claims. They contract with a PEO to assume these responsibilities and provide expertise in human resources management. This allows the PEO client to concentrate on the operational and revenue-producing side of its operations.
A PEO provides integrated services to effectively manage critical human resource responsibilities and employer risks for clients. A PEO delivers these services by establishing and maintaining an employer relationship with the employees at the client's worksite and by contractually assuming certain employer rights, responsibilities, and risk.
When evaluating the employer role of either the PEO or the client, the facts and circumstances of each employer obligation should be examined separately, because neither party alone is responsible for performing all of the obligations of employment. Each party will be solely responsible for certain obligations of employment, while both parties will share responsibility for other obligations. When the facts and circumstances of a PEO arrangement are examined appropriately, both the PEO and the client will be found to be an employer for some purposes, but neither party will be found to be "the" employer for all purposes.
Both the PEO and the client company establish employment relationships with worksite employees. Each entity has a right to independently decide whether to hire or discharge an employee. Each entity has a right to direct and control worksite employees. The PEO directs and controls worksite employees in matters involving human resource management and compliance with employment laws, and the client company directs and controls worksite employees in manufacturing, production, and delivery of its products and services.
The client company provides worksite employees with the tools, instruments, and place of work. A PEO can assist in ensuring that worksite employees are provided with a worksite that is safe, conducive to productivity and operated in compliance with employment laws and regulations. In addition, the PEO provides worksite employees with workers' compensation insurance, unemployment insurance and a broad range of employee benefits programs.
PEOs create an employment relationship with their workers. This relationship exists in fact, not just in form. PEOs can manage the risks attendant to the personnel functions that they perform only if they establish an employment relationship with their worksite employees. Unless a PEO has a right to direct and control, hire, supervise, discipline and discharge these employees, the PEO will merely assume liability without having a means to manage that liability.
PEOs manage their employment liability exposure by monitoring and requiring compliance with employment laws, developing policies and procedures that apply to worksite employees, supervising and disciplining worksite employees, exercising discretion related to hiring new employees, and ultimately terminating worksite employees who do not comply with requirements established by the PEO. |
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“You can expect a PEO to act as a sort of satellite office of your company, performing and managing HR functions for the employees it hires on your behalf, including staffing, employee relations, payroll and benefits…Along with taking those duties off your shoulders, PEOs have the added benefit of making your company part of a larger group that includes all the companies it serves. This strength-in-numbers approach benefits you when the PEO negotiates services like benefit plans and health insurance. In that pool, bigger fish get better rates.”
“Strengthening Your Core”, Franchise Times, July 2007
“Thousands of businesses have turned to professional employer organizations (PEOs) for relief. A typical PEO takes over the time-consuming task of HR management, freeing companies to refocus resources on their core discipline. Besides handling a company’s payroll processing, full-service PEOs often provide small and medium-sized businesses with access to big-company benefits they could not offer on their own.”
“Small Businesses Confront HR Woes with the Help of PEOs” American Payroll, July 7, 2007
“In a PEO, or professional employer organization, arrangement, a business places all or most of its workforce onto the payroll of an outsourcing firm, which assumes responsibility for payroll, benefits and other human resource functions. The outsourcer virtually becomes the human resources department for its client. Legally, it serves as the co-employer.”
“Question (about outsourcing)” Credit Union Management, June 2007
“PEOs promise to take all the burdens of HR off your shoulders. They’ll write job descriptions, make sure you comply with labor laws, do payroll, hire and fire, and even allow your employees to share in benefit programs usually available only to big employers.”
“The Bigger Picture: No More HR Headaches?” Physicians Practice, June 2007
“Many PEOs now behave much like consultants, helping clients tap into the latest health benefits and comply with complex labor regulations related to discrimination and workplace safety. PEOs are becoming one-stop shops for business owners eager to outsource all their HR functions and focus instead on their core business. … PEOs make the most sense for business owners who can’t afford a dedicated human resources staff and don’t have the time to handle day-to-day HR issues themselves.”
“Fed Up with HR?” Inc. Magazine, May 2006
“Think of a PEO as an off-site personnel department. For an annual fee, often 2% to 7% of the dollar value of annual payroll, a PEO manages everything from recruiting and hiring to managing health benefits. They’re a boon to small businesses, many of which don’t need and can’t afford a full-time human resources department.”
“Finding first aid for small companies’ health costs” USA Today, April 19, 2006
"Nationwide, thousands of companies are finding that outsourcing their human resources function to a full-service, professional employer organization (PEO) is the solution to their HR needs. This strategic management option allows a company to remain focused on its core competencies, helping enable them to further develop and meet their business goals and objectives."
"What Is a Professional Employer Organization" BIZ AZ, February 1, 2006
"Lori Booker says her public relations firm's profits rose 25 percent after she hired a company to handle the business' human resources needs. The reason: She had been devoting so much of her time to employee issues before she turned elsewhere for help. … About 10 years ago, after spending an entire day interviewing workers' compensation insurance providers, Booker said she'd had enough. She signed up with a professional employer organization that is now her HR operation."
"Outsourcing: Matter of Course for Small Biz" Washington Post, January 26, 2006
"It's not news to any small business owner that a true HR department is a luxury. That's why companies routinely outsource a host of functions to a variety of providers-a payroll company here, an insurance carrier there. But managing those relationships takes time … . That's where PEOs come in."
"A Fresh Look at Professional Employer Organizations" Small Business Review, January 23, 2006
"Business owners often say their employees are their most valuable asset. With employees come all the necessary tasks of managing payroll, taxes and benefits that are part of doing business. But there is an approach to human resource management that can help lighten those ongoing responsibilities. Professional employer organizations are businesses that act as co-employers and take care of a company's personnel responsibilities. When a business contracts with a PEO, the PEO assumes responsibility for its employees, providing services ranging from risk management to human resources compliance, payroll to employee taxes."
"PEO Spells Relief" Jacksonville Business Journal, December 30, 2005
"For many businesspeople there simply isn't enough time in the day to build a company and run a human-resources operation that touches all the regulatory bases while fulfilling employees' needs. A growing number of small firms are solving the problem by outsourcing the HR function to professional employer organizations (PEOs)."
"Professional Employer Organizations Can Free You to Run Your Business" Business News New Jersey, December 19, 2005
"A PEO serves as an outsourced human resources department for small and medium-sized businesses, assuming or sharing many of the responsibilities associated with being an employer, including administrative paperwork, HR responsibilities and employer liability management. Many full-service PEOs also offer depth of experience, sophisticated service and a comprehensive array of employee benefits that many small companies could not otherwise afford."
"Rely on a PEO for Benefits and More" Boston Herald, August 1, 2005
"Professional employer organizations are morphing. Back when PEOS were started as a way to help companies cope with rising costs for workers' compensation coverage, they also offered potential clients additional human resources services, such as payroll processing and benefits management. Now those same clients are increasingly looking to PEOs for more sophisticated services, such as employee screening, safety audits, lawsuit protection and nontraditional health care coverage such as vision and dental plans."
"A PEO by a Different Acronym" Tampa Bay Business Journal, March 28, 2005
"If you want to hand off all of your human resources hassles — not just health insurance — you might consider a professional employer organization, or PEO. Such organizations serve as outsourced human resources departments. For a monthly administrative fee, usually about 1.5% to 3% of your gross payroll, the PEO handles it all — insurance, benefits, payroll, workers' compensation, and other HR related services."
"Cut Your Health Care Costs Now" Inc., April 2005
"Businesses today need help managing increasingly complex employee related matters, such as workers' comp claims, health benefits, payroll, payroll tax compliance, and unemployment insurance claims. PEOs have stepped in to offer employers an avenue to cost-effectively outsource the management of these responsibilities. This allows the employer to concentrate on the operational and revenue-producing side of its business."
"Special Report" Workers' Compensation Report, May 24, 2005 |
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