What is a PEO?

Unlike other HR outsourcing companies that provide only one or two quality services, a professional employer organization (PEO) offers a far more comprehensive approach to helping you manage your business’s human resources responsibilities. A PEO allows you to transfer the majority of your business’s cumbersome and time-consuming HR tasks to a dedicated team of HR specialists who are available to provide immediate guidance and recommendations for your specific needs.

It’s important to understand that PEOs are not temp firms, staffing agencies or payroll administration companies. Instead, most PEOs offer a comprehensive suite of HR services to their clients –- everything from recruiting services to benefits administration. Sometimes these services are offered as a bundle; sometimes they’re offered a la carte.

A reputable PEO offers a variety of professional HR and business services. Typically, when you join a PEO, it’s an opportunity for you to outsource the bulk of your responsibilities, including:
  • Employment administration
  • Government compliance management
  • Employee benefits
  • Workers’ compensation
  • Payroll and payroll tax administration
  • Recruiting and hiring
  • Policies and best practices
  • Performance management
  • Training and development
As a PEO client, you don’t have to devote your valuable time tracking payroll or negotiating rates with benefit providers. Nor do you have to hire additional staff to manage it for you.

The Co-Employment Relationship

The separation of HR responsibilities and liabilities that occurs when you work with a PEO is called co-employment. In this type of business relationship, your employees work for both your company and the PEO. While you maintain direct control of the day-to-day work activities of your employees, the PEO assumes the administrative functions of HR and absorbs or shares many employer-related liabilities. The PEO can also provide advice and guidance on all issues related to HR, such as creating employee and workplace policies and procedures as well as staying current on government compliance requirements.

One common misconception is that companies that hire a PEO no longer have control over HR and employee-related decisions. But the truth of the matter is that PEO client companies aren’t required to consult with the PEO before making a decision about an employee. So instead of losing control, employers often find that working with a PEO gives them more time to concentrate on the nuts and bolts of their company. Think of it this way: Just like your employees, the PEO works for you, not the other way around.


Beyond relinquishing day-to-day HR tasks, working with a PEO offers a variety of other advantages.

  • Quality employees. Most small businesses don’t offer benefits due to the cost, says Milan Yager, president of the National Association of Professional Employment Organizations, or NAPEO. For instance, he says only about 20 percent of small businesses offer a 401(k) package.

    “Without benefits, you’re going to lose people to turnover, which kills a business,” says Yager. With a PEO, small businesses are able to offer their employees reasonably priced benefits, such as 401(k) plans and medical coverage, and can, in turn, attract skilled workers and reduce turnover.
  • Regulatory compliance. When it comes to HR, the government has a slew of rules and regulations by which you must abide. But exactly what those are and how they affect your business is not always clear. Many PEOs will guide you, step-by-step, through the often cumbersome process of ensuring your business complies with the myriad of both federal and state-specific employment laws.
  • Reduced liability. One employee lawsuit could jeopardize the very existence of your business. But as a PEO client, the PEO assumes or shares your employer-related liabilities, taking on the risk of employment-related legal issues, thereby reducing the risk to your business.
  • Buying power. When you enter into a relationship with a PEO, not only do you get to hand off the administrative responsibilities of HR, your company gets the leverage and buying power of the much larger PEO. This means you can obtain the same benefits and low premiums as many large companies.
Yager says today’s economy requires two main characteristics for company survival. Businesses cannot waste money and must focus on core competencies, which means spending less time focusing on HR requirements and responsibilities.

If HR duties are keeping you from being more competitive, a PEO that takes these responsibilities off your plate may be the best solution. InsperityTM Workforce OptimizationTM, our most comprehensive offering, enables you to focus on growing your business while we handle the everyday details. For more information, check out Insperity’s comprehensive solutions to see if it’s a right fit for your business.

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Insperity Staff

For more than 28 years, Insperity has provided industry-leading human resources management products and services to over 100,000 businesses. With Insperity® Workforce Optimization®, our full service HR, you’ll get administrative relief, access to better benefits, reduced liabilities and shoulder-to-shoulder HR support from a dedicated service team. 
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