Frequently Asked Questions

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. A PEO is a company that contractually assumes and manages critical Human Resource and personnel responsibilities and employer risks for its clients while establishing and maintaining a co-employment relationship with the clients’ employees.
In the arrangement 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 share and allocate responsibilities and liabilities. The PEO assumes much of the responsibility and liability for the business of employment, such as risk management, human resource management, and payroll and employee tax compliance.

The client company retains responsibility for and manages product development and production, business operations, marketing, sales, and service. The PEO and the client will share certain responsibilities for employment law compliance. As a co-employer, the PEO will often provide a complete human resource and benefit package for worksite employees.

Business owners want to focus their time and energy on the “business of their business” and not on the “business of employment.” As businesses grow, most owners do not have the necessary human resource training; payroll and accounting skills, the knowledge of regulatory compliance, or the backgrounds in risk management, insurance and employee benefit programs to meet the demands of being an employer.
The company that comes to a PEO wants an expert organization to take care of the business of employment so they can focus on core tasks. Smaller companies cannot put together a big-company HR program with the services and benefits offered by a PEO. Neither can they effectively manage employment risk. Larger companies, including some that employ an HR professional, want to outsource the day-to-day administrative tasks that would otherwise require additional HR staff.
The PEOs economy of scale enables each client company to lower employment costs and increase the business’s bottom line. The client can maintain a simple in-house HR infrastructure or none at all by relying on the PEO. The client also can reduce hiring overhead.

The professionals at the PEO can provide critical assistance with employer compliance, which helps protect the client against liability. In addition, the PEO provides time savings by handling routine and redundant tasks for its clients. This enables the business owner to focus on the company’s core competency and grow its bottom line.

PEOs assume responsibility and liability for payment of wages and compliance with all rules and regulations governing the reporting and payment of federal and state taxes on wages paid to its employees. The Internal Revenue Service recognizes the PEO as the employer for federal income and unemployment taxes, and case law affirms the principle that the PEO is responsible for payroll taxes.

As the employer for employment taxes and employment benefits, PEOs assume responsibility and liability for payment of state unemployment taxes. Most states recognize the PEO as the employer for UI purposes. Many states also recognize the PEO as the employer of worksite employees for purposes of providing workers’ compensation coverage.

Additionally, PEOs provide worksite employees with coverage under the entire spectrum of employment laws and regulations, including federal, state, and local discrimination laws, Title VII of the 1964 Civil Rights Act, Age Discrimination in Employment Act, ADA, DMLA, HIPPA, Equal Pay Act, and CORBA. In some cases, these laws would not apply to workers at small business without the PEO relationship, since many statutes have exemptions based upon the number of workers in a work force. Once included in the PEO’s workforce, the workers are protected by these laws.

A temporary staffing service recruits employees and assigns them to clients to support or supplement the client’s workforce in special situations. A PEO arrangement involves all or a significant number of the client workplace employees in a long-term, non-project-related, employee relationship. The PEO assumes the employer responsibility for employment taxes, benefit plans, and other human resource purposes.
Workers seek financial security, quality health insurance, a safe working environment, and opportunities for retirement savings. Some PEOs may provide Fortune 500 quality employee benefits including 401(k) savings plans, and aggressive workplace risk management. Job security is improved as the PEO’s economy of scale permits a business to lower employment costs. Job satisfaction and productivity increase when workers are provided quality human resource services.
American business is undergoing a fundamental change in human resource management. Driven by the needs of business owners seeking solutions to the increasingly complex “business of employment” the PEO industry is leading the way as the staffing solution of the future.

See http://www.napeo.org/findapeo/faqs.cfm for full text.