How Does a Professional Employer Organization Work?


What does PEO mean?

A PEO stands for a professional employer organization. They offer comprehensive HR services for small and medium-sized businesses. This includes handling employee wages, taxation issues, and assisting with employee regulatory compliance. Nowadays, more and more businesses are turning to partnership with PEOs as it is an efficient and cost-stabilizing option to manage their employees’ multiple needs.


What are the Services PEOs Provide?

PEOs provide a variety of services defined within a specified arrangement between the PEO and the client organization.

Some standard services that PEOs provide include payroll processing access to workers’ compensation insurance, employee benefits plans and administration, and human resources support.  They also offer on-site and remote Federal and State required labor law posters and notices, and many provide a multiple-employer plan 401k.

Some PEOs may also offer recruiting services as well as advice/assistance for the international workforce.


How does a PEO Work?

The host company and the PEO enter into a written contract that outlines the PEO’s scope of services and products.  This contract is known as a CSA, which stands for, Client Services Agreement.

As a result of this agreement, a Co-Employment relationship is established, and the PEO becomes the official “Employer of Record” for payroll and tax purposes.

The client company maintains the responsibility of the day-to-day operation of the business, supervision/management of all employees, as well as all decisions related to hiring, firing, and setting compensation levels as they always had before.


What are the benefits of using a PEO?

A PEO comes with several benefits for both employees and employers. Out of these many reasons, we have discussed just a few below.


Creates more time

A PEO can help when it comes to assistance with daily administrative and transaction tasks related to the employees; they can keep the business in full compliance as they maintain close familiarity with State and Federal mandates and changes in laws and regulations. This way, a company may avoid or mitigate employment-related liability, which can be costly and damaging to the business. As a result, this ends up creating free time, which may be allocated to other key parts of the business, such as operations, employee retention, productivity, and profit maximization.


Opens a pool of better benefits

As an official employer, a PEO tends to hire more workforce in contrast to small business owners. As an ever-growing collective of employees, this means they can be eligible for powerful employee benefits packages that they would never be able to afford on their own. This may include employee healthcare and ancillary insurance products, worker’s compensation insurance, and 401k offerings.


Leads to lower costs

PEOs handle administrative tasks using the most cost-effective practices that can lower and stabilize costs.  PEO’s also focus on the mitigation or complete elimination of employment-related liability due to the management of ongoing compliance and keeping abreast of any regulatory changes at the State or Federal level.  This can prevent large fines or penalties if overlooked.

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