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What is a PEO? It's is a service that allows you to reduce the administrative burden of employment for your company.
The PEO does this by co-employing your company’s employees, which allows the PEO to become the employer of record for tax purposes and insurance purposes.
Get the guide on how PEOs work for small businesses.
The primary benefit of co-employment is that it enables the PEO to take on administrative obligations that your business would otherwise be required to take on.
Registration and ongoing filings with your state’s unemployment agency
Obtaining employment-related insurance such as worker’s comp and EPLI
Maintaining compliant I-9 records
In addition, co-employment makes it possible for the PEO to seamlessly offer employee benefits such as medical, dental and vision insurance, as well as 401(k) and commuter benefits.
How Co-Employment Works
Co-employment is a legal arrangement recognized in some states in which your employees are employed by two employers: By you, for the purposes of direction, and by the PEO, for the purposes of administration. Generally, there will be a Client Services Agreement delineating the responsibilities between your company and the PEO.
The PEO Effect on Day-to-Day Business
In co-employment, the PEO becomes the employer of record for tax purposes, filing paperwork under its own tax identification numbers. You, as the client company, will continue to direct the employees’ day-to-day activities.
The PEO can then take responsibility for many of the human resources and payroll functions of your business, freeing you to invest your time in what matters: Building your company.
The one way PEOs affect your day-to-day at the office is by focusing on workplace risk management, safety programs and good human resources practices.
PEO Membership Saves Time, Money, and Stress
Working with a PEO can save both time and hiring staff that would be utilized to prepare payroll and administer benefits plans, and often times reduces legal liabilities or obligations to employees that your company would otherwise be liable for.
PEOs are frequently able to secure a better overall package of benefits than a small business would be able to do on its own, which is great for attracting and retaining top notch talent.
PEOs typically arrange workers’ compensation coverage with major insurance carriers and manage the claims for you. They can secure workers’ compensation insurance coverage at a lower cost than client companies can obtain on an individual basis. Essentially, a PEO obtains workers’ compensation coverage for its clients by negotiating insurance coverage that covers not just the PEO, but also the client companies. In this way, PEOs leverage the power of many for great, lower rates.
PEO Membership is Ideal for Small Businesses
The average small business company size averages around 20 employees, but in recent years, larger businesses are signing up to take advantage of PEO benefits. Client companies range from accounting firms to high-tech companies to manufacturers to medical offices, restaurants, and retail businesses.
The Recent History of the PEO
Co-employment in the United States began as early as the 1940s, but more people began to discover the power of the PEO in the late 1960s. In the early 1970s, the PEO concept was popularized by a consultant named Martin Selter, who co-employed the employees of a doctor’s office in Southern California. By 1985, there were approximately 275 PEOs in the United States, jumping to 400 by 2007.
As of 2010, there were more than 700 PEOs operating in the United States, covering 2-3 million workers.
Quick Guide to Advantages of Using a PEO
For Businesses Owners and Executives, the PEO:
Provides experienced professionals in HR, benefits, payroll, risk management and other aspects of employee administration and development
Assumes specific employment-related liabilities
Delivers professional assistance with employment related regulatory compliance (ADA, payroll, OSHA, EEOC, FMLA, FSLA, etc.)
Provides secure Internet access to payroll, benefits and personnel data
Provides access to professional HR guidance and materials
Manages employment and risk management related claims
Supplies or enables employee handbooks, policies, procedures and practices
Improves cost control
Delivers access to better benefits
Helps reduce employee turnover
Provides quality benefits to attract and retain the best employees
Gives you the opportunity to grow your business faster
For Employees, the PEO:
Provides access to comprehensive benefits often previously unavailable (401(k), comprehensive insurance benefits, Flexible Spending Plan, commuter benefits, and other voluntary plans)
Delivers on-time and accurate payroll
Provides professional assistance with employment-related issues
Supplies easy-to-read employee handbooks, policies, procedures and practices
Offers up-to-date information on regulatory compliance
Processes claims efficiently and responsively
Provides improved access to payroll information, benefits, personnel data, vacation and sick time accrual, and specialized reports
Joining a PEO makes sense for many businesses, large and small, and can mitigate liability, help save time (like negotiating with brokers or researching paperwork requirements and mailing filings) and money (by securing high value benefits for your employees). A PEO membership could make hiring your next employee a way better experience!
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.