Professional Employer Organization FAQs

What is a Professional Employer Organization (PEO)?
A Professional Employer Organization (PEO) is an IRS-recognized entity that assumes substantial employer responsibilities and risk through a contractually established co-employer relationship with its clients and their employees.

How does a PEO arrangement work?
We co-employ your worksite employees; both you and we share an employment relationship with the worker, with separate responsibilities and liabilities. We assume responsibility and liability for the "business of employment", including risk management, personnel management, human resources, payroll and payroll taxes. You retain responsibility for onsite day-to-day direction of your employees and manage product development and production, business operations, marketing, sales, and service. We share certain responsibilities for employment law compliance. As a co-employer, we can provide a complete human resource and benefits package for the worksite employees.

What is the difference between temporary staffing services and a PEO arrangement?
A temporary staffing service recruits employees and assigns them to support or supplement your workforce in special work situations, such as employee absences, temporary skill shortages, or seasonal workloads. These workers are typically only a small portion of your workforce. In contrast, a PEO contractually assumes and manages employer responsibilities for all or a majority of your workforce. Industry ratios reveal that a PEO arrangement is a long-term relationship, with nearly 95% of clients and worksite employees remaining with the PEO for a year or longer. Worksite employees participate in the PEO's full range of employee benefits including, health, dental, and life insurance, vision care, and retirement savings plans.

Who uses a PEO?
Nationally, the average client customer of a PEO is a small business with 16 worksite employees, though larger businesses also find value in a PEO arrangement. Small business customers include every single type of business from accountants to small manufacturers and every profession in between, including doctors, retailers, mechanics and more. Employee Professionals averages 30 employees per client, with some clients having more than 500 employees.

How many Americans are employed in a co-employment PEO arrangement?
It is estimated that 2-3 million Americans are currently co-employed in a PEO arrangement. PEOs are operating in every state, and the industry continues to grow at an average of 20% each year.

Why would a business use a PEO?
In the highly regulated 21st century, few business owners have the necessary human resource training, payroll and accounting skills, knowledge of regulatory compliance, or background in risk management, insurance and employee benefits programs to meet the demands of being a employer.

Do you, the owner, lose control of your business?
No. You retain ownership of your company and full control over your operations. As co-employers, you and we contractually allocate employer responsibilities and liabilities. We generally only assume responsibilities and liabilities associated with a "general" employer for purposes of administration, payroll, taxes and benefits. You usually retain rights and responsibilities associated with "special" employers related to actual business operations. You continue to have responsibility for worksite safety and compliance. We will be responsible for payroll and payroll taxes and will maintain employee records. Because we are also responsible for Workers' Compensation, we also focus on improving safety and compliance. In general terms, we focus on employment-related issues and you focus on actual business operations.

Why would workers want a PEO as an employer?
Workers seek financial security, quality health insurance, a safe working environment, and opportunities for retirement savings. Like most PEOs, we provide Fortune-500-quality employee benefits including, health insurance and 401(k) savings plans, and aggressive workplace risk management. Job security is improved because our economy of scale helps you lower your employment costs. Job satisfaction and productivity increase when workers receive quality human resource services such as employee manuals, grievance procedures, and improved communications.

Who is responsible for employee wages and employment taxes?
We assume responsibility and liability for payment of wages and compliance with all rules and regulations governing the reporting and payment of federal and state taxes on wages paid to employees. In 2002, the IRS issued guidelines confirming the ability of PEOs to offer qualified retirement benefits, in addition to reporting income and handling withholding, FICA and FUTA.

Who is responsible for state unemployment taxes?
As the employer for employment tax and employee benefits, PEOs assume responsibility and liability for payment of state unemployment taxes, and most states recognize the PEO as the responsible entity. A few states require the PEO to report unemployment tax liability under its clients' account number, and some states may hold the client and PEO jointly liable for unemployment taxes.

Who is responsible for employment laws and regulations?
Both you and we have compliance obligations. However, we provide worksite employees with coverage under the entire spectrum of employment laws and regulations, including federal, state, and local discrimination laws, Title VII of the 1964 Civil Rights Act, Age Discrimination in Employment Act, ADA, FMLA, HIPAA, Equal Pay Act, and COBRA. In many cases, these laws would not apply to workers at small businesses without the PEO relationship, since many statutes have exemptions based upon the number of workers in a work force. Once included in the PEO's workforce, the workers are protected by these laws.

Who is responsible for workers' compensation?
Many states recognize the PEO as the employer of worksite employees for purposes of providing workers' compensation coverage.

Does a PEO arrangement affect a collective bargaining agreement?
No. We work equally well in union and non-union worksites. The National Labor Relations Board (NLRB) recognizes that, in co-employment relationships, worksite employees are appropriately included in the client employer's collective bargaining unit. Where a collective bargaining agreement exists, we fully abide by the agreement's terms. We endorse the rights of employees to organize or not organize, according to standards of the NLRB.

Do PEOs need to be licensed to provide insurance benefits to their workers?
Like other employers, a PEO may sponsor employee benefit plans for its worksite employees. Such benefits may be mandated by law, such as workers' compensation and unemployment benefits, or voluntary, such as health, life, dental and disability insurance. We procure these benefits from licensed insurance agents and authorized insurers.