---
title: "How does a PEO work? | ADP"
description: "The contract between a business and a PEO establishes what is known as a co-employment relationship."
---

FAQ

# How does a PEO work?

1.  [PEO](/what-we-offer/hr-outsourcing-and-peo/professional-employer-organization)
2.  [What is a PEO](/resources/articles-and-insights/articles/p/peo-what-is-a-peo-professional-employer-organization)
3.  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](/what-we-offer/benefits/business-insurance/workers-compensation), provides access to employee benefit programs, offers human resources guidance, and handles HR tasks on your behalf, such as benefits administration.

## How Does Ownership Status with a PEO Work?

Organizations that enter a PEO relationship keep complete ownership or control of their business. The [PEO](/what-we-offer/products/totalsource-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](/resources/articles-and-insights/articles/p/peo-do-peos-offer-workers-compensation-coverage) 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.

![ADP Editorial Team](/-/media/adp/resourcehub/images/authors/resourcehub_headshot_defaultlogo_250w_en.png?h=250&iar=0&w=250&rev=bd3d17f5038e4ff3aef554d2642143cf&hash=52D2290FEA29314404E1E73B03D0D26D)

[ADP Editorial Team](/resources/authors/a/adp-editorial-team)The ADP editorial team is comprised of human resource professionals with extensive experience solving complex HR challenges for businesses of all sizes.

## Recommended for you

-   [What does a PEO cost? How pricing works and how to compare total employment cost](/resources/articles-and-insights/articles/p/peo-what-is-the-cost-of-a-peo)
-   [Can I get insurance through a PEO?](/resources/articles-and-insights/articles/p/peo-can-i-get-insurance-through-a-peo)
-   [Choosing the right PEO for your business: PEO buyer’s guide](/resources/articles-and-insights/articles/c/choosing-the-right-peo-for-your-business)
-   [How to do payroll? | Set up for small business & LLC](/resources/articles-and-insights/articles/h/how-to-do-payroll)

### PEO 101: The Basics & Key Things You Need to Know

[Download now](/resources/articles-and-insights/articles/p/peo-101-basics-and-key-things-you-need-to-know)

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