What is a PEO?

Are you bogged down by employee paperwork?

Is your payroll a pain in the neck?

Or maybe, attracting and retaining good employees is a constant struggle because your benefits aren’t up to par.

Whatever the cause may be, HR challenges can be a real hindrance to your business’ growth. It’s easy to overlook key revenue-generating opportunities when you’re distracted by your HR to-dos.

The good news: There’s help out there – it’s called a professional employer organization (PEO).

These organizations can work with your company to provide comprehensive and affordable payroll, benefits and human resource services through a business-to-business relationship called “co-employment.”

What is co-employment?

As a business leader, you may cringe a little when you hear the term co-employment. But it’s really not as intrusive as it may sound.

Through the co-employment relationship, a PEO takes on many of your employee-related employer responsibilities, while you continue to manage and run your business. Here’s what that actually means for your business:

Your role

Your company remains the primary employer. You’ll still maintain control over managing your employees’ daily to-dos and core job functions as well as maintaining your organizational structure.

The PEO’s role

As the co-employer, the PEO takes on certain, specific employer obligations, as set forth in your service agreement. This allows the PEO to handle functions such as payroll, benefits, tax remittance and related government filings. Because it acts as an employer for those purposes, the PEO can assume a greater amount of responsibility than, for example, a payroll company.

One-stop shop

Typically, a PEO can manage many of the HR jobs that you would have to outsource to multiple service providers – like payroll processing, benefit plan management and administration, recruiting and training, and more. This way you can spend less time managing various vendor relationships.

The PEO becomes your one-stop shop for:

Employee benefits

Typically, with PEO-sponsored benefit plans, your employees will have access to a wider variety of benefits than your company could obtain on its own. This includes medical, dental and vision coverage, a health care flexible spending account, a retirement plan, life insurance and personal accident insurance, short-term and long-term disability insurance, adoption assistance, commuter benefits and educational assistance.

Payroll processing

The PEO processes payroll for your employees, including managing the regular compensation of your employees, along with payroll record maintenance and management, payroll compliance, online paystubs and W-2s, payroll management reports, garnishment and deduction administration and PTO accruals.

HR administration

Supporting your internal HR team, a PEO helps you manage your liabilities as an employer, providing employee handbooks, new hire onboarding, termination assistance, leave of absence request management, employee relations support, drug testing services, liability management training, employment verification, and more.

Workers’ compensation coverage and administration, including claim resolution

Joining a PEO provides you with workers’ compensation insurance coverage. The PEO also manages and resolves an injured employee claims in the event of an on-site injury. To prevent injuries before they even happen, PEOs offer workplace loss prevention reviews. Its loss prevention specialists can work with your company to design loss prevention and return-to-work programs.

Performance management support

A PEO can help you design and conduct employee performance appraisals on a regular basis. In addition, to support ongoing performance improvement, PEOs often provide you with compensation resources and tools, supervisor coaching, assistance with job descriptions, reward and recognition program design, base pay structures, self-help tools and worksheets for variable and sales compensation structures and company climate surveys.

Training and development

Many PEOs can offer you training and leadership development services for your employees, such as an online learning management system containing interactive courses and digital books. A PEO’s training services may also include live or virtual training seminars.

Recruiting support

A PEO can help you design the ideal recruitment process that fits your unique business. It may also work with you to develop job descriptions, conduct wage and salary surveys, and improve your hiring managers’ interview and candidate selection skills.

Strategic HR support and planning

A PEO can help you develop a strategic HR plan that allows you to make HR management decisions now that will support the future direction and growth of your organization.

Reduce your employer liability

What’s more – through this co-employment relationship with a PEO – your company can effectively and efficiently mitigate a substantial portion of the risk and responsibility associated with having employees, including risks associated with things like:

  • Correctly reporting, collecting and depositing taxes with state and federal authorities
  • I-9 requirements
  • EEO reporting and claim resolution
  • Management of certain employee-related claims and provision of Employee Practice Liability Insurance (EPLI)

At-the-ready compliance assistance

Most PEOs employ specialists who are responsible for monitoring many employer-related state and federal laws. Armed with this knowledge, the specialist stays abreast of constantly shifting laws, regulations and reporting requirements that impact the services the PEO provides to your business.

A PEO does NOT

  • Control your business. PEOs provide access to seasoned HR professionals whose guidance and advice you can solicit when you need assistance. They help manage your company’s employee-related administration and risks, but you maintain control of business and operational decisions.
  • Replace your internal HR staff. PEOs align with your company’s existing HR department or staff to provide complimentary expertise, such as support in administering workplace policies and making shifts in company culture. A good PEO will employ seasoned HR staff who are certified HR professionals who have experience with various industries. And as a PEO client, their expertise is at your disposal. This can prove invaluable when you’re faced with complicated HR situations or workplace improvement initiatives, such as increasing employee engagement, addressing conflict effectively or developing compensation programs that connect to business goals.
  • Cause disruption to your workplace. There is minimal, if any, disruption to employees when you work with a PEO. They will see the PEO’s name on their paycheck and other documents, but will likely appreciate the greater depth and breadth of benefits offered as a result. In addition, some PEOs offer online self-service options that allow employees to access and manage their personal, benefits and paycheck information whenever they want.

PEO vs. CPEO: What’s the difference?

Recently, the IRS established a new classification for PEOs – certified professional employer organizations (CPEO). The certification is the result of a decade of advocating for a federal law that establishes guidelines and a framework for the professional employer organization industry and the payment of federal employment taxes.

Unlike PEOs that are not IRS certified, a CPEO assumes the sole responsibility for federal employment taxes for wages it pays to worksite employees. In addition, the law governing the CPEO relationship allows customers to maintain specified tax credits for which they would otherwise be eligible. It also puts an end to wage base restarts for new and terminating customers throughout the entire year.*

But that’s not all you need to know about CPEOs. To learn more, read: What is a CPEO? Here’s your easy-to-understand guide.

*The IRS does not endorse any particular certified professional employer organization. For more information on certified professional employer organizations go to www.IRS.gov.

To learn more about the advantages a PEO has to offer your business and how to determine if a co-employment relationship is the right decision for your company, download our free e-book, HR Outsourcing: A Step-by-Step Guide to Professional Employer Organizations (PEOs).

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8 responses to “What is a PEO?


I have read many blogs but you have shared the huge information about ”What is a PEO”.Thanks for sharing this blog post.keep it up..

Insperity Blog

Thank you for your thoughtful feedback! We appreciate you taking the time to read this post. Glad you found the information on PEOs helpful!

barbara palombo

Thank you Michael! I am using this today 🙂

Insperity Blog

That’s great, Barbara! Thanks for reading 🙂

Robert A Schermerhorn Sr.

I have had the pleasure of talking to Susan Harris Layne
As such I would like to be informed and learn more about your companies service and pass it on to our customers in the future.

Robert A Schermerhorn Sr.

I have had the pleasure of talking to Susan Harris Layne
As such I would like to be informed and learn more about your companies service and pass it on to our customers in the future.

Robert A Schermerhorn Sr.

I have had the pleasure of talking with Susan Harris Layne
For this reason, I would like to understand more about your programs and pass it on to our coustomers.

Insperity Blog

Hello Robert, Thank you for your comments! Someone will be following up with you soon to share information regarding our programs. Hope you have a great day!

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