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A professional employer organization (PEO) is a service which allows you to reduce the administrative burden of employment for your company. The PEO does this by co-employing your company’s employees, which allows the PEO to become the employer of record for tax purposes and insurance purposes. The primary benefit of co-employment is that it enables the PEO to take on administrative obligations that your business would otherwise be required to take on. For example:
Co-employment is a legal arrangement recognized in some states in which your employees are employed by two employers: By you, for the purposes of direction, and by the PEO, for the purposes of administration. Generally, there will be a Client Services Agreement delineating the responsibilities between your company and the PEO.
In co-employment, the PEO becomes the employer of record for tax purposes, filing paperwork under its own tax identification numbers. You, as the client company, will continue to direct the employees’ day-to-day activities. The PEO can then take responsibility for many of the human resources and payroll functions of your business, freeing you to invest your time in what matters: Building your company. The one way PEOs affect your day-to-day at the office is by focusing on workplace risk management, safety programs and good human resources practices.
Working with a PEO can save both time and hiring staff that would be utilized to prepare payroll and administer benefits plans, and often times reduces legal liabilities or obligations to employees that your company would otherwise be liable for. PEOs are frequently able to secure a better overall package of benefits than a small business would be able to do on it’s own, which is great for attracting and retaining top notch talent. PEOs typically arrange workers’ compensation coverage with major insurance carriers and manage the claims for you. They can secure workers’ compensation insurance coverage at a lower cost than client companies can obtain on an individual basis. Essentially, a PEO obtains workers’ compensation coverage for its clients by negotiating insurance coverage that covers not just the PEO, but also the client companies. In this way, PEO’s leverage the power of many for great, lower rates.
The average small business company size averages around 20 employees, but in recent years, larger businesses are signing up to take advantage of PEO benefits. Client companies range from accounting firms to high-tech companies to manufacturers to medical offices, restaurants, and retail businesses.
Co-employment in the United States began as early as the 1940’s, but more people began to discover the power of the PEO in the late 1960’s. In the early 1970’s, the PEO concept was popularized by a consultant named Martin Selter, who co-employed the employees of a doctor’s office in Southern California. By 1985, there were approximately 275 PEOs in the United States, jumping to 400 by 2007. As of 2010, there were more than 700 PEOs operating in the United States, covering 2-3 million workers.
For Businesses Owners and Executives, the PEO:
For Employees, the PEO:
Joining a PEO makes sense for many businesses, large and small, and can mitigate liability, help save time (like negotiating with brokers or researching paperwork requirements and mailing filings) and money (by securing high value benefits for your employees). A PEO membership could make hiring your next employee a way better experience!