What is a PEO? Definition and Services
There are a great many topics to try and wrap your head around when you step into the world of building and managing your own business.
Logistics, sales, marketing, product development, SEO, social media, and just managing your cash flow well enough to keep the lights on and the doors open can be enough to bury any hopes and dreams you had of enjoying the fruits of your hard work, let alone navigating the complexities of HR.
Hiring, firing, payroll, insurances, taxes – they’re enough to drive anyone insane! Luckily, there’s an organisation who can at least take all that off your plate.
What is a PEO?
A PEO is an outsourcing organisation that provides human resources-related services to small to medium sized businesses (SMBs). These services can include, but are not limited to:
- Payroll processing
- Human Resources Consulting
- Tax filings
- Workers’ Compensation insurance
- Health Insurance
- Liability Insurance (EPLI)
- Compliance Assistance
- HR Management Technology
- Training and Development
Different PEOs offer different packages that combine some or all of these services.
What does PEO stand for?
PEO stands for Professional Employer Organization.
How many PEO companies are in the US?
We currently have 50 PEO companies listed in our database of US-based PEOs.
Our full PEO Company Database is available here.
If you would like to know more about these PEOs, you can read full reviews of each of these on our PEO Reviews page.
Why would you use a PEO?
The primary reason to use a PEO is to remove the significant HR burden placed on SMEs due to the complexity of the United States’ state-based HR laws.
Processing your own payroll, navigating the complexities of individual state tax rates, organising health insurance, establishing 401(k)’s for your employees, and dealing with HR issues are all a significant time-suck for even the most organised and experienced business managers.
On top of this, using a PEO will allow you the employees of small businesses to access the same benefits available to the employees of big businesses. These include health, dental, and life insurance – typically unavailable to employees in small businesses.
When you combine the benefits to your employees with the reduced workload on you as the employer (freeing your time up for other, more important tasks), using a PEO is a smart choice.
How does a PEO work?
When you sign a contract with a PEO, you enter a co-management arrangement.
They become the official employer of record for all your employees (while technically only a co-employer) – an arrangement recognised by both state and federal governments – while you retain the day to day management responsibilities for the employees.
You instruct your employees on which tasks to complete throughout the day/week/month. The employees timesheets/contracts are lodged with the PEO and when and when it’s time to pay the employees (and their negotiated benefits), the PEO bills you (the company) for the wages owed to your employees.
The PEO is responsible for deducting the appropriate taxes, paying the employee benefits, administering any benefits, and ensuring that all the necessary HR-related paperwork is filed with the appropriate organisations.
If any changes need to be made to the employees contract or employment situation, you can consult with the PEO regarding your state-based obligations and then notify them of the changes that need to be made.
What is the difference between a PEO and a staffing company?
The difference between a PEO and a staffing company is that a PEO does not provide labour to your company. You are in charge of hiring, training, and firing staff and cannot request that your PEO provide more team members for your company. They simply take control of the HR operations.