How does a PEO work?

The contract between a business and a PEO establishes what is known as a co-employment relationship. Both companies share certain employment responsibilities and the PEO becomes the employer of record for the client organization’s employees.

  • The PEO client continues to manage its business and operations, providing products or services to its buyers.
  • The PEO processes payroll, withholds and pays payroll taxes, maintains workers’ compensation coverage, provides access to employee benefit programs, offers human resources guidance, and handles HR tasks on your behalf, such as benefits administration.

Ownership Status

Organizations that enter a PEO relationship keep complete ownership or control of their business. The PEO focuses on employment-related areas — such as payroll, HR administration, taxes associated with employment, and benefits — while the PEO client handles the regular operations of its business.

Liability Reduction

Another benefit to a PEO is reduction of liability for the client company. Many PEOs offer workers’ compensation and Employment Practices Liability Insurance (EPLI), which protects against employment lawsuits. Certified PEOs also offer coverage for tax liability and penalties. A PEO can provide small-to-medium-sized businesses with greater legal and financial protections than they can afford on their own.

Tags: Small Business Payroll HR Outsourcing PEO Co-Employment HR Admin & Outsourcing ADP TotalSource® PEO