FAQs

Professional employer organizations (PEOs) provide human resource services to small and mid-size businesses—paying wages and taxes under the PEO’s EIN, offering workers’ comp and risk management services, and providing compliance assistance with employment-related rules and regulations.

In addition, PEOs provide HR technology systems and access to 401(k) plans, health, dental, and life insurance, dependent care, and other benefits. In doing so, PEOs help businesses take care of employees by enabling them to offer Fortune 500-level benefits at an affordable cost and providing access to experienced HR professionals. 

PEOs also help business owners and executives save time by taking administrative and HR-related tasks off their plates, allowing them to focus on the success of their businesses.

Any business can benefit from partnering with a PEO. 

Generally, most businesses that use a PEO have 10-150 employees. Increasingly, larger businesses also are finding value in a PEO arrangement, because PEOs offer robust web-based HR technologies and expertise in HR management. 

PEO clients range from accounting firms to high-tech companies and small manufacturers. A broad range of professionals, including doctors, lawyers, retailers, mechanics, engineers, plumbers and more also benefit from PEO services.

More than 200,000 businesses across the country use a PEO. Collectively, these businesses employ more than 4.5 million people.

A recent study by noted economists Laurie Bassi and Dan McMurrer showed that businesses that use a PEO grow two times faster, have employee turnover that is 12% lower, and are 50% less likely to go out of business. 

Through a PEO, the employees of small businesses gain access to Fortune 500-level employee benefits such as: health insurance, dental and vision care, life insurance, retirement saving plans, job counseling, adoption assistance, educational benefits, and even pet insurance. These are benefits they might not typically receive as employees of a small business.  

PEOs also provide access to human resource professionals as a part of their services to small businesses. Through this service, PEOs help small businesses comply with myriad federal, state, and local employment laws, and help their employees better understand their rights and responsibilities under these requirements. 

By providing payroll, benefits, and HR services and assisting with compliance issues under state and federal law, PEOs allow small businesses to improve productivity and profitability, to focus on their core mission, and to grow. 

Once a client company contracts with a PEO, the PEO will then co-employ the client’s worksite employees. In the arrangement among a PEO, a worksite employee and a client company, there exists a co-employment relationship, which involves a contractual allocation and sharing of employer responsibilities between the PEO and the client pursuant to a client service agreement (CSA). The PEO typically remits wages and withholdings of the worksite employees and reports, collects and deposits employment taxes with local, state and federal authorities.  The PEO also issues the Form W-2 for the compensation paid by it under its EIN.  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, as determined in the CSA.  As a co-employer, the PEO will often provide a complete human resource and benefit package for worksite employees. 

Co-employment is a contractual agreement between a company and a PEO that allocates and divides employer responsibilities. The contract is often called a client service agreement (CSA). 

In a co-employment agreement, a PEO client’s employees (also called worksite employees) are employed by two separate entities, the client company and the PEO. 

The client company is the employer who has a direct relationship with the employee and is responsible for all business decisions, operations, day-to-day supervision of employees, job assignments, employee reviews and assessments, and determining the employee’s salary and benefits offerings. 

The PEO provides services related to employment such as: payroll processing; payroll tax administration; employee benefits; HR services; workers’ comp coverage and claims management; compliance assistance; and HR technology platforms. 

The business owner retains ownership of the company and control over its operations. As co-employers, the PEO and client will contractually share or allocate employer responsibilities and liabilities per a client service agreement (CSA). 

In general terms, the PEO will focus on employment-related issues, and the client company will make all decisions related to day-to-day operations, business growth, supervision and evaluation of employees, job assignments, and employees’ salary and benefits.

PEOs do not supply labor to worksites. PEOs supply services and benefits to a business and its existing workforce. A PEO pays wages and taxes under the PEO’s EIN, offers workers’ comp and risk management services, and provides compliance assistance with employment-related rules and regulations. In addition, PEOs provide HR technology systems and access to 401(k) plans, health, dental, and life insurance, dependent care, and other benefits.  

Historically, the term “employee leasing” was used to describe what has evolved into the PEO industry. Some older state statutes governing PEOs still use the leasing terminology, contributing to the confusion about PEOs.

PEOs do not supply labor to worksites. They co-employ existing permanent workforces and provide services and benefits to both the worksite employer and the employees. 

A temporary staffing service recruits and hires employees and assigns them to clients to support or supplement the client’s workforce in special work situations, such as employee absences, temporary skill shortages or seasonal workloads. These workers are traditionally only a small portion of the client’s workforce.

There is little, if any, disruption to employees. 

Employees appreciate the wide array of benefits available to them through the PEO, as well as the online technology PEOs can offer and the availability of HR expertise. A recent study by noted economists Laurie Bassi and Dan McMurrer showed that, when a company uses a PEO, employees have greater trust and confidence in the business and higher levels of engagement.  

​A PEO’s 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 professionals at the PEO can provide critical assistance with employer compliance, which helps protect the client against liability. In many cases, the client can pay a small up-front cost for a significant technology and service infrastructure or platform provided by the PEO. 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.