What is a PEO?

Professional employer organizations (PEO’s) enter joint-employment relationships with employers by “leasing” employees to employers. This allows PEO’s to share and manage employee-related responsibilities and liabilities. It allows employers to outsource their human resources functions, including employee benefits, compensation, payroll administration, taxes and compensation.

PEO’s are most often the employer of record for the employees of their clients. And wages of client companies are reported under the PEO’s federal employer identification numbers (FEIN). Because of these arrangements, employers gain economies of scale via the offer of more and lower-priced benefit options. They also maintain control of business decision-making, including employee management. PEO contracts also differ in how many HR functions are outsourced. These responsibilities are outlined in client service agreements (CSA’s) between client companies and PEO’s.

What PEO’s do

PEO’s most commonly assist client companies with:

  • Processing payrolls, and sometimes paying taxes.
  • Integrating payrolls with attendance records.
  • Handling employee enrollment and claims for benefits
  • Compliance, safety audits and training.
  • HR services and support
  • Recruitment, hiring and training
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What a PEO doesn’t offer

A PEO does not:

  • Make independent business decisions for client companies
  • Assist with marketing, sales, or distribution
  • Determine salaries, hours, or schedules

Learn about – How Your Business Can Benefit from Working With a PEO

PEO’s help businesses become more efficient by offering experience in HR, payroll, and business efficiency systems. Strategic guidance by PEO experts in these areas helps businesses grow with the knowledge they’ll also be safe from employer-related liabilities.

PEO’s help clients manage time efficiently by outsourcing HR to multiple service providers, creating operational efficiency, reducing risk, and maximizing talent utilization.

Some PEO’s help improve workforce performance through data analytics and benchmarking. These services help companies determine whether they’re salary range is consistent with the market, which skill sets to utilize in specific job categories, where to augment departmental headcount, and how rates of employee turnover compare to competitors.

Altogether, these services help companies improve business practices, increase employee retention and reduce turnover.

Under what circumstances should you select a PEO?

PEO’s help client companies spend less time on the management of vendor relationships – because they manage many of the HR jobs that would typically be outsourced to multiple service providers. PEOs commonly help their client companies increase operational efficiency, reduce risks, and maximize talent utilization.

Advantages of using a PEO include:

1. Providing better benefits and employee experiences

– PEO’s help client companies access a wider range of benefits options, often at more attractive rates, than what companies might be able to have access to on their own – particularly when they are small or medium-sized businesses. PEO’s help the employees of their client companies access the benefits most often reserved for large companies. And they serve as a single point of contact for client inquiries. Having this in place permits companies to recruit and retain the talent they need for organization success more effectively.

When a company joins a PEO, their employees will have access to some or all of the following:

  • Medical, dental, life, disability, and accident insurance
  • A flexible healthcare spending account
  • A retirement account
  • Transportation, education and childcare assistance
  • Educational assistance
  • Training and development

2. Risk reduction

By utilizing PEO co-employment, companies can significantly reduce the risks and responsibilities that come with having employees, including:

  • State and federal tax collecting and reporting
  • I-9 requirements
  • EEO reporting and claims management
  • Management of employee claims and Employee Practice Liability Insurance (EPLI)

Most PEOs employ specialists who are responsible for monitoring many employer-related state and federal laws. Armed with this knowledge, specialists stay abreast of constantly shifting laws, regulations and reporting requirements that impact the services the PEO provides to your business.

To help reduce risks for client companies, PEOs often provide:

2.1 Workers’ compensation protections

PEO’s help to provide worker’s compensation insurance, while also managing injury claims by employees. They also seek to help clients protect employees from getting injured by having loss prevention specialists who review and help improve work safety practices and create return-to-work-programs.

2.2 Payroll processing

  • Paying client company employees
  • Payroll maintenance and compliance
  • Online payment records and W-2 forms
  • Payroll reports detailing management oversight
  • Administration of wage garnishments and deductions
  • PTO-related accruals

2.3 HR administration

PEO’s help support client HR departments to manage employer liabilities by providing:

  • Employee handbooks
  • Onboarding for new hires
  • Assistance to terminated employees
  • Leave of absence request management
  • Employee liaison services
  • Drug testing services
  • Training in liability management
  • Verification of employees

3. Reduce costs

Not only do PEOs help their client companies save time. They can also help them save money via:

  • Better hiring practices which reduce turnover
  • Creating new ways to motivate employees
  • Creating strategies for future success

Single-sourced HR and benefits via PEO’s help clarify for clients how their investment in their workforce is making improvements.

PEO’s help client companies via:

3.1 Recruiting support

PEO’s help create custom recruitment processes for each business. PEO’s also help with:

  • Developing job descriptions
  • Conducting surveys about wages and salaries
  • Improving interview and candidate selection skills of senior managers

3.2 Performance management support

PEO’s help design and facilitate job performance appraisals and improvements. They also provide:

  • Compensation tools and resources
  • Management coaching
  • Help with creating job descriptions
  • Design of employee reward programs
  • Creation of salary structures
  • Creation and management of sales compensation structures
  • Employee satisfaction surveys

3.3 Strategic HR support and planning

PEO’s help develop strategic HR plans that support business growth.

How much PEO’s cost

PEOs most often charge a percentage of payroll. Some on the number of employees. To get a price estimate, companies typically provide information about their workforce and desired benefits.

When evaluating PEO costs, companies should consider:

Good PEO’s typically provide a cost analysis showing how payments will be allocated

Data insights or talent management typically cost extra but can help improve return on investment.

Managing HR without a PEO may take time away from key business activities.

How to choose a PEO

When choosing a PEO, consider the following:

  • Carefully assess your needs
  • Can the PEO meet your goals?
  • Discuss your needs with the PEO leadership
  • Check references.
  • Is the PEO a NAPEO member, the PEO industries national trade association?
  • Is the PEO IRS certified? Certified PEO’s (CPEO) can pay federal employment taxes
  • Are the PEO’s financial statements independently audited?
  • Are PEO risk management practices certified by the Certification Institute?
  • Is the PEO’s accredited by The Employer Services Assurance Corporation (ESAC)?
  • Are PEO staff experienced?
  • Does PEO corporate staffing match marketed services?
  • Does senior PEO staff have professional training?
  • Does the PEO carry full insurance?
  • Who is the third-party administrator (TPA) or carrier?
  • Do benefits fit employee needs?
  • Are contract provisions clear and specific?
  • Does the PEO meet state requirements?


When a business works with a PEO. Who is the employer?

With co-employment, the PEO is the employer of record for tax purposes, but the client business holds full authority over its workforce.

How will it benefit a company to work with a PEO?

PEO’s help business clients navigate HR, risk and compliance, helping them protect and grow their business.

What does the acronym PEO mean?

PEO means professional employer organization. PEO’s help businesses operate their HR function while avoiding risk.

How do PEO’s charge?

PEO’s charge for their role in being a co-employer, depending on the number of employees and services needed. For example, PEOs that manage basic HR administration would be less expensive than those offering more extensive services.

How are PEO’s and staffing companies different?

PEOs don’t supply a workforce. They assume some responsibilities that make them co-employers with the businesses they assist. Staffing companies, on the other hand, lease employees to other businesses while serving as a sole employer.

How do PEO’s impact client company cultures?

Organizational culture in a co-employment situation is unlikely to be affected unless that is a desired result. PEO’s can recommend strategies to help impact culture in a way that represents how you want your business to be perceived.

When a company partners with a PEO, do they also become a co-employer of other companies’ employees?

No contractual relationship is created between all of a PEO’s clients. Companies, therefore, are not responsible for employees other than their own.

How is PEO and HR outsourcing different?

In co-employment, there are employer responsibilities which are shared with the PEO that cannot be achieved from HR outsourcing. For example, PEO’s typically provide access to health insurance and other benefits for employees. HR outsourcing companies, however, simply help administer existing benefits, HR or payroll.