Last Updated: February 08, 2023

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Professional employment organizations arrived during the 1990s as an effective resource for companies looking to minimize their risk, provide affordable benefits packages, and take advantage of the PEO's experience and expertise in handling tasks and functions related to human resources. Partnering with a PEO allows companies to reduce costs, control expenses, increase productivity, and focus their efforts on growing the business.

PEOs offer a wide variety of HR services that run the full gamut of the employee cycle, from creating job descriptions and postings all the way through to terminations and all points in between. If you choose, the PEO works with you on recruiting new talent, screening applicants, designing employee handbooks, onboarding new employees, training, payroll, benefits management, performance management, and terminations. It also assumes the risks inherent in regulatory compliance, and handles all taxes and required insurance policies such as unemployment and workers' compensation. In addition, it takes on labor disputes, handles workers' comp and unemployment claims, and deals with employee taxes.

The PEO can do all of these things because it partners with your company to become your employees' co-employer.

PEO Co-Employment

Though your employees continue working for your company, and you manage their day-to-day workload and responsibilities, you share employer status with the PEO. The PEO is the Employer of Record and hires all employees under its own federal tax ID. You become the Worksite Employer and maintain sole control over every other facet of your organization. Decisions that directly affect your employees are made jointly between you and the PEO.

This co-employer relationship is what gives PEOs their buying power, as they are the Employer of Record for every employee of every company with which they partner.

Services Provided by PEOs

If it would normally be managed by a human resources department, it can be managed by a PEO. Some companies already outsource payroll processing, recruitment, training, benefit administration, or even all of the above. Instead of outsourcing to multiple vendors, a PEO is your one-stop shop for all things HR. This saves not only the time it would take to manage these functions yourself, but also the hassles of managing multiple vendors to handle these tasks.

PEO offerings include:

  • Administrative functions: Your PEO can handle a wide variety of administrative tasks, including writing job descriptions, recruiting new talent, screening applicants, conducting background checks, onboarding new hires, creating employee handbooks, training, employment verification, and termination assistance. These services help ensure you remain in compliance with labor laws at all times.
  • Benefits packages: With so many employees, PEOs enjoy tremendous buying and negotiating power, making it possible for them to offer top tier benefit plans even to employees who work for small companies. This includes obvious options, such as health, dental, and vision insurance, but also retirement plans, flexible spending accounts, life insurance, disability insurance, tuition reimbursement, employee discount programs, and a wide variety of other lifestyle benefits.
  • Leadership development programs: If you would like to offer leadership development training for your employees, you may be able to work with your PEO to design such offerings, either online or in a classroom setting. Many PEOs also offer webinars and other virtual trainings.
  • Payroll processing: Your PEO manages everything related to payroll, including tracking time worked, PTO accruals, holidays, scheduling, compliance, W-2s, records management and reporting, garnishments, online paystubs, and, of course, distributing employee pay.
  • Performance management: You can work with your PEO to develop a performance management program, including performance improvement protocols, regular appraisals, recognition programs, and employee satisfaction surveys. PEOs also work with companies to design job descriptions, pay and bonus structures, and employee resources. PEOs also provide supervisors with training on effective coaching methods.
  • Recruitment: As you likely realize, hiring great talent isn't always easy. Many PEOs help with the recruitment process, beginning with creating job descriptions and determining appropriate salary levels. They also work with hiring managers to develop better interview skills and advise on selecting the ideal candidate.
  • Strategic planning: You can work with your PEO to develop future HR plans that support your company's growth and the direction you hope to take it.
  • Workers' compensation insurance: PEOs provide workers' compensation insurance and manage any claims made against it. To reduce claims, it also conducts workplace safety reviews to ensure your facility is OSHA-compliant. The PEO also helps design safety programs and return-to-work programs once employees are ready to resume their duties after an accident or injury.

Compliance and Risk Management with a PEO

One of the biggest reasons companies turn to PEOs for their HR needs is risk management. There are so many possible errors when it comes to dealing with payroll, benefits, and labor laws. Many employers make a mistake without even knowing it until they're hit with a fine.

With a PEO, you reduce your liability, because the PEO assumes that responsibility. Your PEO ensures that all taxes are reported, collected, and deposited correctly with both state and federal authorities. It also manages I-9 requirements, certain claims under Employee Practice Liability Insurance, and handles EEO reporting and claims.

The PEO also stays on top of changes to state and federal laws, ensuring you always remain in compliance, while you spend your energy growing the business and increasing revenues. Through your PEO, you're always compliant with laws designed to protect workers, such as the Family and Medical Leave Act, Americans with Disabilities Act, and the Fair Labor Standard Act.

Responsibilities as Outlined in the Service Contract

As co-employers, you and the PEO each have your own responsibilities, but you also share some responsibilities. These should be clearly delineated in the service contract you sign.

Before signing anything, read it carefully, preferably with legal counsel. The contract should include guarantees, provisions for terminating the contract, and clearly defined roles and responsibilities of both parties. It should also make it clear that the PEO meets all guidelines, including state, local, and federal laws and regulations.

Examples of responsibilities include:

  • Your company: Daily operations, production, generating revenue, sales
  • PEO: Payroll processing, HR management, tax compliance, risk management
  • Shared: Employment regulations, such as OSHA

Choosing Your PEO Services

While the PEO offers a wide variety of services, you likely won't need or want all of them. For one thing, your charges vary based on the services you choose. In addition, not all PEOs offer the same level of services. For example, some do not provide deep-level assistance with recruitment and performance management. Also, many companies prefer to maintain control over these types of day-to-day operations. The level of involvement you choose depends entirely on your individual needs.

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