Buyers Guide for PEO - Professional Employer Organization Services

Introduction to PEOs

Every successful business relies on its employees. It’s a fact: dedicated employees are a requirement to grow your company. Being careful with whom you hire and taking care of them once they are contributing is a cornerstone of most successful companies. Unfortunately, it also a fact that being an employer can be a minefield of insurance, governmental, taxation and legal pitfalls. In addition, it can be expensive to obtain and administer the insurance and employee benefits programs that make your company an attractive place to work. A Professional Employer Organization or PEO can relieve the administrative burdens while providing attractive employee benefits options.

PEO relationships are founded on the concept of co-employment. This makes them the “employer of record” for tax filings, workers’ compensation insurance and benefit programs. Although the term has fallen into disfavor, this is the origination of the term “employee leasing”. Entering into a co-employment relationship with a PEO provides HR related expertise and shifts employment related risks onto the PEO. You or your managers retain day-to-day business direction of the employees and the administrative aspects are shifted to the PEO. For companies with an overworked HR staff or no HR staff at all, PEOs offer a great way to reduce the administrative burdens and focus on growing their business.

Is a PEO always a co-employer?

While the PEO industry offers many options for workers’ compensation insurance and health insurance coverage, the determination for co-employment is determined by the federal tax ID reporting the employee wages. A co-employment relationship requires the wages to be reported under the tax ID of the PEO. Employment related responsibilities are contractually assigned between the client company in a document called a Client Services Agreement.

How is a PEO different from an HRO?

A Human Resources Outsourcing (HRO) provider can provide similar services to a PEO however, an HRO company will not become a co-employers. For more information visit our HR Outsourcing area.

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