How does a PEO arrangement work?
relationship 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 contractually allocate some and share other traditional
employer responsibilities and liabilities. The PEO assumes responsibility
and liability for the "business of employment" including risk management,
human resources, labor law compliance, payroll, and employee taxes. The
client company manages product development and production, marketing,
sales, and service. The PEO assumes and establishes an employment
relationship with the worksite employee and provides a complete human
resource and employee benefit package.
What is the difference between temporary staffing services and a PEO
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 longterm, non-project-related,
employment relationship. The PEO assumes the employer responsibility for
employment tax, benefit plans, and other human resource purposes.
Why would a business use a PEO?
All business owners want to
focus their time and energy on the "business of their business" and not on
the "business of employment." Most business owners don't have the
necessary human resource training, payroll and accounting skills,
knowledge of regulatory compliance or background in risk management,
insurance and employee benefit programs to meet the demands of being a
In a PEO arrangement, does the business owner lose control of his or
Absolutely not. As co-employers, the PEO and
client/business owner become partners in the employment of their workers.
The client retains ownership of the company and manages the day-to-day
activities of the employees. As co-employers, the PEO and client
contractually share or assume employer responsibilities and liabilities.
What responsibilities are typically assumed by 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 tax and
employee 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, FMLA, HIPAA, Equal
Pay Act, and COBRA. 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.
Why would a worker want a PEO as an employer?
financial security, quality health insurance, a safe working environment,
and opportunities for retirement savings. PEOs may provide Fortune 500
quality employee benefits including health insurance, 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.
What is the future of the PEO industry?
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.