How does a PEO arrangement work?
In the relationship among a PEO, a worksite employee, and a client company, there exists a Co-Employment relationship in which both the PEO and client company have an employment relationship with the worker. The PEO and client company contractually allocate some and share other traditional employer responsibilities and liabilities. The PEO assumes responsibility and liability for the “business of employment” including risk management, human resources, labor law compliance, payroll, and employee taxes. The client company manages product development and production, marketing, sales, and service. The PEO assumes and establishes an employment relationship with the worksite employee and provides a complete human resource and employee benefit package.
Why would a business use a PEO?
All business owners want to focus their time and energy on the “business of their business” and not on the “business of employment.” Most business owners don’t have the necessary human resource training, payroll and accounting skills, knowledge of regulatory compliance, or background in risk management, insurance and employee benefit programs to meet the demands of being a good employer. Consider this collection of human resources issues of which a company must be aware and strive to be compliant with.
In a PEO arrangement, does the business owner lose control of his or her business?
Absolutely not. As co-employers, the PEO and client/business owner become partners in the employment of their workers. The client retains ownership of the company and manages the day-to-day activities of the employees. As co-employers, the PEO and client contractually share or assume employer responsibilities and liabilities.
What responsibilities are typically assumed by PEOs?
PEOs assume responsibility and liability for payment of wages and compliance with all rules and regulations governing the reporting and payment of federal and state taxes on wages paid to its employees. The Internal Revenue Service recognizes the PEO as the employer for federal income and unemployment taxes, and case law affirms the principle that the PEO is responsible for payroll taxes.
As the employer for employment taxes and employment benefits, PEOs assume responsibility and liability for payment of state unemployment taxes. Most states recognize the PEO as the employer for UI purposes. Many states also recognize the PEO as the employer of worksite employees for purposes of providing workers’ compensation coverage. Additionally, PEOs provide worksite employees with coverage under the entire spectrum of employment laws and regulations, including federal, state, and local discrimination laws, Title VII of the 1964 Civil Rights Act, Age Discrimination in Employment Act, ADA, DMLA, HIPPA, Equal Pay Act, and CORBA. In some cases, these laws would not apply to workers at small business without the PEO relationship, since many statutes have exemptions based upon the number of workers in a work force. Once included in the PEO’s workforce, the workers are protected by these laws.
Why would a worker want a PEO as an employer?
Workers seek financial security, quality health insurance, a safe working environment, and opportunities for retirement savings. PEOs may provide Fortune 500 quality employee benefits including 401(k) savings plans, and aggressive workplace risk management. Job security is improved as the PEO’s economy of scale permits a business to lower employment costs. Job satisfaction and productivity increase when workers are provided quality human resource services.
What is the difference between temporary staffing service and a PEO arrangement?
A temporary staffing service recruits employees and assigns them to clients to support or supplement the client’s workforce in special situations. A PEO arrangement involves all or a significant number of the client workplace employees in a long-term, non-project-related, employee relationship. The PEO assumes the employer responsibility for employment taxes, benefit plans, and other human resource purposes.
What is the future of the PEO industry?
American business is undergoing a fundamental change in human resource management. Driven by the needs of business owners seeking solutions to the increasingly complex “business of employment” the PEO industry is leading the way as the staffing solution of the future.