The contract between a business, or client company, and a PEO establishes a co-employment relationship. The PEO practically and legally assumes certain aspects of employer responsibilities, and the client company maintains other employment responsibilities. The PEO typically helps manage HR-related functions (HR, compliance, benefits, payroll and tax infrastructure) while the client continues to oversee all other business-related activities. In other words, the client employer supplies and manages the workers, and the PEO supplies and helps manage HR services.

There are over 900 PEOs in the U.S., with different specialties and covering different geographic areas. A small number of PEOs are certified by the IRS which offers additional security and liability protection.