What Is a PEO?

PEOs, or professional employer organizations, partner with companies to help manage HR, payroll, benefits and more.

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A PEO is a type of full-service HR outsourcing

PEOs (professional employer organizations) partner with companies to provide comprehensive HR outsourcing to help manage a company’s human resources, employee benefits, regulatory compliance and payroll outsourcing.

A PEO works through a co-employment arrangement, which means the PEO contractually shares certain employer responsibilities and risk with the company.

What are the benefits of a PEO?

By partnering with a PEO, companies are able to:

  • Provide employees access to high-quality, comprehensive benefits
  • Minimize risk and stay on top of regulations
  • Reduce administrative HR tasks
  • Gain HR support without increasing headcount
  • Address the changing needs of employees and the business

PEO certification means a higher standard

ADP® offers an IRS-certified PEO* solution called ADP TotalSource®. For you, it means ADP’s PEO meets the high standards set by the IRS. It ensures your federal employment taxes are paid. It means you’re not subject to double IRS taxation that can occur when you join a noncertified PEO. It is a win-win for you and your employees.

See everything you can accomplish with ADP TotalSource®.

Who uses a PEO?

Millions of workers in the United States are currently co-employed through PEOs.

PEOs are a good fit for almost all industries, including (but not limited to):

  • Real estate and property management
  • Computer services
  • Securities brokers and dealers
  • Engineering services
  • Health services
  • Legal services
  • Management consulting services
  • Business services
  • Accounting, auditing and bookkeeping
  • Manufacturing
  • Plumbing/HVAC
  • Electrical
  • Insurance
  • Wholesale
  • Nonprofits
  • Technology

PEO FAQs

What is co-employment?

The contract between a client and the Professional Employer Organization (PEO) establishes the co-employment relationship. The PEO assumes certain aspects of employer responsibilities. Your employees become co-employed by both you and the PEO, thereby giving you access to the PEO’s built-in HR, compliance, benefits, payroll and tax infrastructure.

What is a certified PEO (CPEO)?

Certification by the IRS gives business owners confidence that a PEO partner meets the high standards set by the U.S. government and is recognized as the employer for federal employment tax purposes if certain other conditions are met.

A certified PEO is:

  • Treated as the employer of worksite employees for federal employment tax purposes
  • Allowed to pay wages and collect and remit federal payroll taxes on behalf of a client
  • Required to meet IRS certification requirements, including financial review and reporting requirements
  • Required to post a bond, up to $1 million, to guarantee payment of employment

ADP TotalSource is a certified PEO.*

What does working with a CPEO ensure?
  • Fiscal Ownership — CPEOs are solely responsible for the payment of federal employment taxes if certain conditions are met; if a company utilizes a non-certified PEO that doesn’t pay their taxes, they could be liable for the unpaid federal employment taxes, late penalties and interest related to their employees
  • Required Federal Standards — Because CPEOs can be solely responsible for the payment of federal employment taxes, they must meet specific requirements regarding tax status, background, experience, business location, financial reporting and more
  • Financial Guarantee — The certification program also requires a CPEO to post a bond each year of up to $1 million guaranteeing payment of its federal employment tax liabilities
  • Tax Restart Elimination — Certification eliminates the wage-base “restart” for certain federal payroll tax purposes for PEO customers that join or leave a CPEO relationship midyear
  • Customer Eligibility for Tax Credits — Certification allows customers of CPEOs to qualify for specified federal tax credits that they would be entitled to claim if there were no PEO relationship
Does partnering with a PEO mean losing control of my business?

No. It is important to note that every PEO is a little different. ADP's PEO is responsible for processing your employees' payroll and withholding and for paying payroll taxes, maintaining workers’ compensation coverage, providing employee benefits and career development programs, providing human resources guidance, and providing worksite safety guidance. You continue to operate your business as you did prior to the PEO relationship. You remain an employer and do not lose any of your management or supervisory rights.

In fact, because PEOs help you manage HR and minimize risk, you actually have greater control of your business, because you can focus on your priorities — and not HR.

Does partnering with a PEO affect my company culture?

No. In fact, with ADP’s PEO, we learn your challenges and aspirations, and recommend strategies to help you achieve your goals. You are able to leverage the best of both worlds: the flexibility and control of owning your own business, along with the benefits and expertise of a large organization.

If you want help in this area, ADP can help you shape your company culture and employment brand to represent the company you are today — or wish to be in the future.

Will a PEO help me stay in compliance with ever-changing employment laws?

A PEO gives your business a risk partner that shares certain employment risks. As a vested partner, ADP TotalSource tasks our risk-and-compliance experts to keep up with ongoing changes to HR and safety regulations. We can help you react and comply with the changes that affect your business.

A PEO will also help you comply with other complex employer requirements.

By partnering with a PEO, do I also become a co-employer of other companies’ employees?

No. The relationship between you and the PEO is distinct from the PEO’s relationship with other companies. No contractual relationship is ever created between all of the PEO clients. You are not responsible for any employees other than your own.

What is the difference between a PEO and HR outsourcing?

In a co-employment relationship, you share certain employer responsibilities with the PEO that cannot be achieved through typical HR outsourcing. For instance, with ADP’s PEO you gain access to robust benefits offerings and employee perks typically only provided by large organizations, and you may get additional protection for your business should you face an employee lawsuit.

Are all PEOs the same?

No. While the co-employment model is a part of every PEO, there are a few key ways in which providers differ from one another:

  • Flexibility: Some PEO providers offer a one-size-fits-all PEO, where others scale to your unique needs
  • Partnership: With some PEOs, you get choices but are still left with the heavy lifting of making tough decisions on your own, while with others, like ADP TotalSource, your dedicated specialists are by your side to help you figure out what’s best for your business, your employees and your bottom line; you’ll want to consider the level of partnership and guidance you need when evaluating your options
  • Dependability: Since the PEO helps manage critical aspects of running your company, you’ll want to consider the provider’s financial stability and track-record
  • Location: Some PEO providers work nationwide, while others are limited to a state or region; even if you plan to stay local, you’ll want to consider a PEO that provides the most opportunities for your business
  • Services: Different PEOs offer different ranges of service; because all PEOs are not created equal, you’ll want to clearly understand the scope of each PEO you’re evaluating to ensure you’re getting the full value

Learn more about our PEO offering, ADP TotalSource.

Who is in control of the employees? Where does the control/responsibility end for the PEO and start for the owner?

You have complete control over whom you hire and the work they perform day in, day out.

What is the definition of "small-to-midsized” businesses?

ADP's PEO supports businesses with as few as two employees and as many as several thousand employees.

Does the PEO actually put a person on-site for each client?

ADP's PEO provides you with dedicated experts, some of whom will come on-site when appropriate. The individuals are not, however, at a desk in your office every day.

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*The IRS does not endorse any particular certified professional employer organization. For more information on certified professional employer organizations go to www.irs.gov.