What Is A PEO - PEO Marketplace

What is a PEO?

A PEO, or Professional Employer Organization, is a professional service company that provides outsourced HR services to other businesses (typically small to mid-size). Many businesses of all sizes and industries use a PEO. When a business partners with a PEO, the PEO assumes & provides support for certain HR functions & liabilities on behalf of the business like…

Are there different types of PEOs?

Yes, there are different types of Professional Employer Organizations (PEOs) that cater to various business needs and sizes, offering a range of services. Understanding these differences can help businesses choose the most suitable PEO partnership. Here’s a look at the primary types:

Full-Service PEOs:
- These PEOs provide comprehensive HR services including payroll, benefits administration, HR management, compliance assistance, workers’ compensation, and risk management. They are suitable for businesses looking for a complete HR solution.
Industry-Specific PEOs:
- These PEOs specialize in serving specific industries, offering customized services that address the unique challenges and regulatory requirements of sectors such as healthcare, technology, construction, or hospitality.
ASO (Administrative Services Organization):
- While not a PEO in the traditional sense, ASOs provide many similar services such as payroll, HR support, and compliance management. The key difference is that with an ASO, no insurance solutions are offered & the employer does not enter into a co-employment relationship with the service provider, retaining more control over employees.
Hybrid PEOs:
- These offer a blend of traditional PEO services with flexible options, allowing businesses to choose which HR tasks to outsource and which to keep in-house. This model is suitable for companies that may only need partial assistance or specific services.
International PEOs (Professional Employer Global or Employer of Record – EOR):
- For businesses operating in multiple countries or looking to expand internationally, these PEOs handle global HR compliance, payroll, and benefits administration, navigating the complexities of international labor laws.
Technology-Driven PEOs:
- These PEOs leverage advanced technology platforms to offer their services, providing user-friendly interfaces, automation, and integrations with other business tools. They appeal to tech-savvy businesses and those prioritizing efficiency and scalability.

The choice of PEO depends on various factors, including the size of the business, industry, the extent of services required, and whether the business operates domestically or internationally. By understanding the different types of PEOs available, businesses can make a more informed decision that aligns with their specific needs and goals.

What Doesn't a PEO Do?

While Professional Employer Organizations (PEOs) offer a wide range of services to help businesses manage their HR functions, there are several things that PEOs typically do not do:

Direct Business Operations or Strategy:
- PEOs do not get involved in the daily operations or strategic decision-making of the client’s business. The business owner retains full control over product development, business strategy, and operational decisions.
Hiring and Firing Decisions:
- Although PEOs can provide guidance on best practices for hiring and termination processes, and assist with related administrative tasks, the ultimate decision-making authority on hiring, firing, and managing employees remains with the client business.
Primary Liability for Workplace Incidents:
- While PEOs can help manage workers’ compensation insurance and claims, the client company may still hold primary liability for workplace incidents or safety issues, depending on the specific terms of the co-employment agreement.
Direct Management of Employees:
- PEOs do not manage the day-to-day tasks of the client’s employees. Leadership, task assignment, performance management, and direct supervision are responsibilities that remain with the client.
Customized Insurance Plans for Every Client:
- PEOs typically offer a range of pre-negotiated insurance plans and benefits, leveraging their buying power to provide cost-effective options. However, these plans may not be fully customizable to the unique preferences of each client business.
Investment or Financial Advice:
- PEOs focus on HR-related services and do not provide investment or financial advice to their clients. Businesses should consult with financial advisors for such needs.
Legal Representation:
- While PEOs can assist with compliance and regulatory issues, they do not represent client businesses in legal matters or disputes. Legal advice and representation should be sought from qualified legal professionals.
Changing the Company Culture:
- PEOs do not directly influence or change a company’s culture. While they can support initiatives that may impact culture indirectly, such as employee benefits or HR policies, the development and nurturing of company culture remain the responsibility of the business’s leadership.
Labor

Unlike a staffing company, PEOs do not provide labor in the sense of supplying temporary or contract employees to work on specific tasks or projects for their clients

Understanding the scope of services and limitations of a PEO is crucial for businesses considering a partnership. It ensures that business owners have realistic expectations and can plan to address areas not covered by the PEO relationship

What is Co-employment?

Co-employment is a contractual relationship between two entities, such as a business and a Professional Employer Organization (PEO), in which both entities share certain employer responsibilities for the same group of employees. In a co-employment arrangement, the PEO becomes the “employer of record” for the employees and takes on certain HR functions. However, the original business still manages the day-to-day activities of the employees and retains control over things like hiring, firing, and job duties. Entering into a co-employment agreement does not change the ownership structure of the business. This shared responsibility allows both the business and the PEO to work together to provide comprehensive HR services to the employees and allowing the employer to focus on growth.

How may businesses use a PEO?

In the United States, a considerable number of small and mid-sized businesses enlist the services of Professional Employer Organizations (PEOs). According to a recently conducted survey by NAPEO in 2021, it was found that there are approximately 173,000 such businesses benefiting from PEO services. These businesses collectively employ an impressive workforce of around 4 million individuals. As reported by NAPEO, a typical PEO caters to multiple client employers, with an average of 19 worksite employees per client employer. These figures highlight the significant utilization and impact of PEOs on the business landscape in the United States.

What factors should be considered when evaluating a PEO's accreditation?

When evaluating a PEO’s accreditation, auditing, and performance, it is crucial to consider the following factors:

1. Accreditation: Start by considering whether the PEO is a member of reputable industry associations such as the National Association of Professional Employer Organizations (NAPEO). Membership in such organizations can indicate a commitment to upholding certain standards and best practices in the PEO industry.

2. Financial Verification: Look for evidence that the PEO’s financial statements and operations are independently verified by an outside source. This verification helps ensure transparency and reliability in the PEO’s financial reporting. It is desirable for the PEO’s financials to be reviewed and approved by an objective auditor to give you confidence in its financial stability.

3. Due Diligence: Conduct a thorough due diligence of the PEO’s operations, reputation, and track record. Research their history, reputation in the industry, and client reviews or testimonials to gauge their overall performance and customer satisfaction levels. This can provide insights into the PEO’s ability to deliver on its promises and effectively manage HR functions.

4. Compliance and Risk Management: Assess the PEO’s systems and processes for ensuring compliance with legal and regulatory requirements. Look for evidence of robust risk management procedures, including measures to protect client data and address potential liabilities.

5. Service Offerings: Evaluate the range and quality of services offered by the PEO. Consider whether they align with your specific HR needs. Assess their technology platforms, HR expertise, employee benefits offerings, and other value-added services that could enhance your HR operations and support your business goals.

6. Client Support: Consider the level and quality of client support provided by the PEO. Evaluate their responsiveness, accessibility, and willingness to address your concerns or specific requirements. Having a reliable and knowledgeable support team can greatly enhance your experience with the PEO.

By taking these factors into account when evaluating a PEO, you can make an informed decision and choose a well-run and trustworthy PEO that aligns with your business needs and goals.

What can a PEO do for you business?

How much does a PEO Cost?

The cost of a PEO (Professional Employer Organization) can vary based on several factors. These factors include the size of the business, the specific services that will be outsourced, and the number and types of employees on the payroll. Generally, PEOs charge either a flat fee per employee or a percentage of the total payroll. To determine the expected PEO costs, it is recommended to calculate the yearly expenses using both pricing models. This will give a clearer understanding of the financial implications for your business. It’s worth noting that when starting a new contract, many PEOs are often open to negotiating and being flexible on pricing arrangements. This means it can be advantageous to assess which pricing option aligns most sensibly with your business’s financial goals and requirements.

What is a PEO?

HR Administration

Time & Attendance

Risk & Safety Management

Employee Benefit Administration

Payroll & Tax Liability

OSHA Reporting

Talent Acquisition

Workers Compensation Insurance Claims

Labor Law Compliance

Performance Management

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