A PEO, or Professional Employer Organization, is a type of full service Human Resource outsourcing program, often referred to as “co-employment” of a client company’s employees.

In this arrangement, the PEO becomes the actual “employer of record” for various employee administrative tasks (such as payroll, workers’ comp and employee benefits administration) on behalf of their client/partner business.

The client company maintains all direct control over the day to day functions of their employees and business while divesting themselves of all employee related liability.  (State unemployment claims, workers’ comp claims and employee legal issues.)

This is the most common misconception about working with a PEO.  The client company and the PEO enter into a legally recognized “Co-employer relationship”, with all duties and responsibilities of both parties clearly delineated in their service agreement:

The client company continues to do all the hiring and firing of employees, salary determination, work scheduling and everything else having to do with overseeing employee activities during the normal day-to-day running of their company, just as before.

The PEO, meanwhile, handles all Payroll Administration , Workers’ Comp and State Unemployment claims, Human Resource and Employee Legal issues, and Employee Benefits Administration – ALL with zero liability to the client company. Therefore, the client company actually has MORE control over employees and things that they NEVER had any control over in the past- Namely CLAIMS.

By virtue of your employees filling out new employment paperwork, the PEO now becomes the legally recognized “Employer of Record” of all of your (former) employees. Those employees are now reported under the Federal ID number of the PEO for all tax purposes, including State Unemployment Tax. In addition, the PEO is also now legally compelled to cover those employees under ITS “Master Workers’ Comp Policy”.  Because the client company no longer has any “legal employees” to report quarterly on (Yes, that means NO MORE 940’s, 941’s or Quarterly State Unemployment Taxes to file, AT ALL) , nor any further need for a “Stand-alone Workers’ Comp Policy” to cover them. For those reasons then, under the PEO program, the client company has neither responsibility for, nor exposure to, any subsequent claims.

A Payroll Company merely processes your payroll and files all necessary Payroll Taxes on your behalf, under YOUR Federal ID Number. Since there is no legal transfer of liability for your employees to the Payroll Company, any errors, omissions, audits and penalties that arise as a result of THEIR actions, remain 100% YOUR responsibility. Your employees are also not eligible to participate in any benefit programs the Payroll Company might offer to any of ITS internal employees.

In contrast, the PEO processes all payroll and payroll taxes for all employees under ITS Federal ID Number, thus any mistakes made or audits created as a result, are the PEO’s problem, not YOURS. Additionally, since the PEO is now considered to be their legal “Employer of Record”, those employees CAN participate in ALL of the Employee Benefit programs offered by the PEO (ie Medical, Dental, 401(K), etc.) at true “Large Group rates”.

Please remember that under this program, you no longer have “Legal Employees” that require coverage under a “Stand-alone Workers’ Comp Policy” for your company. Instead, the PEO takes all of your employees under ITS “Employment Umbrella”, and covers them with ITS “Master Policy”.

Since a PEO is made up of tens of thousands of smaller client companies and hundreds of thousands of collective employees by extension, when THEY as a group THAT size purchase Workers’ Comp coverage, THEY qualify for discounts and specialized programs that a smaller business simply does not.

The PEO then SHARES a portion of those discounts with their client partners, while maintaining all claims liability, therein. Under the PEO program, client companies who have had a good claims history are rewarded by potentially qualifying for up to a 40% premium discount while simultaneously “Locking-in” those lower rates by being insulated from any claims liability going forward.

Client companies who have had a poor claims history, meanwhile, can literally get a “Do-over” and enjoy tremendous value and savings while having their poor claims history and subsequently higher rates, “forgiven”, as WELL as “Locked-in” at the same time.

Any company that runs at least $100K in annual payroll will have absolutely NO “Start-up costs” or “Set-up fees” when partnering with a PEO. The PEO will assign a personal “Conversion Coordinator” who will walk the client company through their entire efficient and streamlined conversion process, and maintain that personal relationship as the client company’s primary contact through the first 30 days of running payroll.

While in that 30-day transition period, the “Conversion Coordinator” will also first introduce, then slowly transition the client to all of the other individuals at the PEO who will handle all the client company’s payroll, Human Resources and Employee Benefits needs going forward.