What does a PEO agreement contain?


Are you looking forward to hiring a PEO to lessen your organizational burdens so you can focus on other core business aspects? Well, that is quite a move!

Now, you must be wondering what goes in a contract that you make with a PEO firm? Fair enough!

In this article, we shall walk you through the whole contract as to what you can expect to come across in a formal PEO agreement contract. You will also understand how this agreement plays quite an important role when it comes to your relationship with a PEO firm.

Let’s start with the basics


What is a PEO agreement?

A PEO agreement (you can also call it a PEO client service agreement) is a legally binding document that clearly lays out everyone’s responsibilities in the co-employment arrangement.

The agreement also clearly puts out the employees that the agreement will be covering in addition to identifying roles, responsibilities, and tasks of each party.

Speaking of what a PEO agreement contains, it varies company to company as every PEO firm will have different terms and conditions. However, the following information is to give you the know-how of how a typical PEO agreement might look like.

Let’s move on to the main part, the PEO agreement!


What does a PEO agreement look like?

To understand a PEO agreement, break it down into two sections. Let’s call it Section A and Section B.

Section A

Section A is the client service agreement. This part, approximately, can stretch to over two pages.

This includes a statement about the grounds on which the PEO and client company are establishing their relationship. Also, it will contain any restrictions between PEO and the client company.

This section will also state the service that the PEO will be covering. This may or may not be limited to the following:

  • Employee benefits
  • 401(k) plans
  • Employee compensation and employer compliance
  • Payroll processing
  • Tax administration
  • HR policies
  • Recruitment services

It will also include the date on which the PEO agreement will come into effect. This will be in addition to the span of the agreement and, of course, signature lines for both the PEO service provider and the host company.

Section B

This includes terms and conditions related to fees and payment structure. Additionally, it includes the schedule of plans related to employee benefits and specific state-oriented provisions.

It is much longer than Section A and is the meaty part of the whole agreement since it touches everything in detail.

Why does a PEO agreement matter?

A PEO agreement matters as it clearly sets expectations for the parties, the PEO, and its client. Both the entities will know for sure what they are getting themselves into. Moreover, since both of the entities will be legally bound, there will be limited chances of disputes or conflicts.

The parties sign the entire agreement to ensure that the working relationship moves seamlessly in a proper direction, without encountering any obstacles.


Leave a Comment