Professional Employer Organization PEO: Overview

Because the PEO is the legal employer, it may have more say in how the employees are managed, trained, and evaluated. Another potential disadvantage is that PEOs can be expensive, and the costs may not be immediately apparent. These fees can add up quickly and may not be reflected in the initial quote. Working with a PEO also provides small businesses with access to much improved health insurance and employee benefit offerings, greatly assisting with recruiting and employee retention.

  1. Employee leasing means that the workforce of one company (the client company) are officially employed by a second company (the employee leasing company), who then leases those employees back to the client company.
  2. After all, human resources management is a complex area that is rife with complicated rules and regulations in the realms of payroll, benefits, etc.
  3. Our PEO provides comprehensive HR outsourcing services supported by personalized HR guidance.
  4. This allows you to focus more on running your business instead of dealing with smaller administrative tasks.
  5. PEOs enter into a co-employment arrangement typically involving all of the client’s existing worksite employees and sponsor benefit plans for the workers and provide human resources services to the client.
  6. To some extent, however, the employer can mitigate the impact by choosing a leasing firm that offers an acceptable benefits package.

If you’re in the market for this service, we encourage you to explore our list of the top PEO companies. Some of the best options on the market are TriNet, Justworks and ADP Totalsource. While a PEO handles human resources on your behalf, the organization doesn’t control your business.

Doing so, PEOs can help medium-sized and small businesses save time and money while reducing administrative burdens. Because safety needs differ by industry, it is important to choose a leasing company with a proven ability to control losses in the employer’s industry. Ask the leasing company to provide a list of clients in your industry, and contact those references. Most leasing companies have standard benefit “packages” that cover all employees leased from the company. Some employers may not need or be able to afford an extravagant benefits package. Others will incur employee dissatisfaction, resentment, and turnover if the package is too meager.

We Help You Solve Your Specific HR Challenges

PEOs give small-group markets access to many benefits and employment amenities they would not have otherwise. The leasing industry’s reputation was damaged by highly publicized frauds against employers and insurers. By keeping our clients compliant with workplace laws and regulations, our clients see further savings by avoiding fines and penalties. We have already mentioned that one of the biggest myths about PEOs is that the relationship they have with clients is employee leasing. When you take a look at the differences between employee leasing and co-employment (which is how PEOs operate), it becomes clear that this myth is far from the truth. This relationship is similar to ‘co-employment‘ which is where different organizations split the employer responsibilities.

Secondly, Peo can handle complex HR tasks, such as payroll processing and tax filings, saving you time and ensuring compliance. Additionally, Peo can offer expert guidance on HR best practices and assist with risk management. Overall, utilizing a Peo can help streamline HR operations and allow you to focus on core business activities. Employee leasing (also known as ‘staff leasing’) is a popular HR and payroll compliance solution. It involves an independent company (the employee leasing company) becoming the legal employer of a client company’s workforce. The employee leasing company then ‘leases back’ those employees to the client company.

Disadvantages of a PEO

PEO clients can thus focus on their core competencies to maintain and grow their bottom line. A permanent staffing method under which an employee leasing company (sometimes called a professional employer organization or a labor contractor) provides all or most of its client’s employees. The overall employee-related costs will be much higher, including premiums that are added for using their staffing services. The added risks and administrative costs for the services provided is why staffing companies are most commonly used as a temporary solution. Workers who work for companies or businesses through a temporary agency or other employee-leasing firm are usually considered to be employees of both the temporary agency/leasing firm and the business.

You Retain Control Over Your Employees

These temporary agencies handle all payroll, tax, and other human resources functions for the workers. Your main responsibility is writing a check to the leasing company to cover the payroll, taxes, benefits and administrative fees. Employment services outsourcing began about fifty years ago and was initially provided by employee leasing firms. An employer would contract with a leasing company, terminate its employees, and then lease back the workers from the leasing firm. This arrangement enabled employers to cut costs and transfer many employment-related risks to the leasing company. When the leasing company is providing workers compensation insurance on leased employees, it should back that up with a sound safety program.

The employer also relieves themselves of any benefit requirements like health care, vacation, sick or holiday pay. The overall employee-related costs will be much higher including fees that are added for using staffing companies. The added risks and administrative costs for the services they’re providing is exactly why staffing companies are to be used as a temporary solution. A PEO is in a relationship with a small business, not to provide staffing solutions, but to provide HR and payroll solutions to them. A staffing company may or may not provide benefits to your leased employee and they do pay your leased employee but you have little control over anything else. A PEO works with a small business as a partner and a co-employer for the best interest of your small business and your employees.

The leasing firm takes over all payroll, tax, and other human resources functions for the workers. PEOs supply services and benefits to a business client and its existing workforce. PEOs enter into a co-employment arrangement typically involving all of the client’s existing worksite employees and sponsor benefit plans for the workers and provide human resources services to the client. In most cases, the PEO provides access to health insurance, retirement savings plans, and other critical employee benefits for the worksite employees of the business client. If a PEO relationship is terminated, the worksite employees’ co-employment arrangement with the PEO ceases, but they will continue as employees of the client.

If you work with one, you’ll minimize financial liability and enjoy greater peace of mind. We will cover all you need to know about these companies and how you can find the best one for your business needs. Please include what you were doing when this page came up and the Cloudflare Ray ID found at the bottom of this page. The ability to apply for a job and be working within a week makes going through a temp agency worth it.

Talking to a PEO broker is one great way to decide which one of these solutions or both are more appropriate for your employment needs. A PEO broker will walk you through all of your employment challenges to help you weigh which choice is your best one. They are experts in the PEO industry so their knowledge is made readily available to a small business owner looking for HR solutions. If you’d like to find out more about a PEO vs. employee leasing, talk to us today and get your small business well on its way to positive growth this year.

Top PEO Companies

It’s important to remember that in a PEO partnership, small business owners do not lose control of various aspects of their business, including their hiring and firing decisions. Business owners retain full control of their business, while the PEO handles the administrative side of HR. Joint employment is unlike employee leasing because, under a joint employment arrangement, the employees have two employers. When you enter into a contract with a PEO, you’re entering into a co-employment arrangement. Although the PEO becomes a co-employer of your employees during the term of the arrangement, once the contract ends, they do not retain this co-employer status.

As a busy business owner, the last thing you need is for your operations to come to a screeching halt because you failed to stay within the state or federal compliance. When you partner with a PEO, there are other rules that apply to larger organizations that you, too, will have to comply with. Most companies assume that they have to take on the task of managing all aspects of their business in order to scale successfully, but that is far from the truth. These companies are beneficial tools that provide you with the services you need to stay compliant while you scale and focus on your bottom line. Whether you have five employees, or 5,000 employees, each of our HR solutions is built to grow with you. Our solutions are customizable to help meet your business’s unique needs, catering to your size, industry, location, goals, and culture.

Help attract and keep employees, offer world-class benefits, simplify payroll, and more. Employee leasing, as an HR concept, has become less popular in recent years, due to the influence of government regulation. As of 2023, PEO, rather than employee leasing, what is peo employee leasing company is the more popular HR solution. While it is still common for some companies to call themselves an ‘employee leasing’ company, they generally operate as a PEO and are subject to the same rules and protections as companies that call themselves a ‘PEO’.

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