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- What is a PEO and what does "PEO" stand for?
- What size companies do PEOs work with?
- What does a PEO allow a company to do?
- In terms of HR, what is the PEO responsible for?
- Are PEOs legally recognized as employers?
- What is the difference between employee leasing and a PEO arrangement?
- What happens is I discontinue my contract with the PEO?
- What is the difference between temporary staffing services and a PEO arrangement?
- How many Americans are in a PEO arrangement?
- How does a PEO arrangement work?
- Why would a small business use a PEO?
- Wouldn't I lose control of my company?
- Why would a worker of a small business want a PEO as an employer?
- Is this just a "fire and re-hire" scheme?
- Is this a scheme to avoid providing health or retirement saving benefits to rank and file workers?
- Who is responsible for employment laws and regulations?
1- What is a PEO and what does "PEO" stand for?
A professional employer organization (PEO) is a company that co-manages your human resources, personnel and employer risks.
2- What size companies do PEOs work with?
PEOs typically work with small to mid-sized businesses with 12 or more employees and do so by establishing a co-employer relationship with worksite employees.
3- What does a PEO allow a company to do?
Outsourcing part of your Human Resource function allows businesses to focus on growing the company, while the professional employer organization handles all of the employee administration, and employee benefit administration.
4- In terms of HR, what is the PEO responsible for?
The PEO is responsible for labor compliance, unemployment claims, maintaining employee files and employee handbooks. In the area of risk management they handle all of your workers compensation claims and update your safety manuals regularly. They also take care of all employee health benefits and payroll including tax filings.
5- Are PEOs legally recognized as employers?
Many states statutorily recognize PEOs as the employer or co-employer of worksite employees for purposes of workers compensation and state unemployment insurance taxes. The IRS has long allowed the PEO to withhold and remit federal income and unemployment taxes for employees in regards to tax filings.
6- What is the difference between employee leasing and a PEO arrangement?
PEOs are based upon the co-employment of an existing workforce. The major distinction is that employee leasing or staffing service supplies new workers on a temporary or project specific basis. These leased employees return to the staffing service for re-assignment after the completion of their contract for the client. Some would define employee leasing as a supplemental, temporary employment arrangement where one or more workers are assigned to a customer for a fixed period of time, often for a specific project. The concept of employee leasing is mainly short term and creates little long-term equity or investment between the worker and customer.
A Professional Employer Organization or co-employment arrangement involves all or a significant number of the client's existing worksite employees in a long-term, non-project related, employment relationship. The PEO assumes employer responsibility for your employee administration, workers compensation, labor compliance, employment tax filings, employee files, health benefits, and other human resource purposes. When using a PEO, your company makes a long-term investment in your workers.
7- What if I become dissatisfied with my PEO relationship?
You will have two options to consider: if you believe in the co-employment concepts and have benefited from working with your PEO but feel that you are both changing directions, you can ask us to go back to the market and find you another qualified PEO organization. The second option is to re-establish your organization as an independent employer, requiring you to go back to the market and contract for employee benefits, workers compensation insurance, unemployment taxes, process payroll returns, purchase employer risk insurance, establish a new employer hand book, human resource files and other procedures to properly manage employer related risks and responsibilities.
8- What is the difference between temporary staffing services and a PEO arrangement?
Like employee leasing, a temporary staffing service recruits employees and assigns them to clients to support or supplement the client's workforce in special work situations, such as employee absences, temporary skill shortages, or seasonal workloads. These workers are traditionally only a small portion of the client's workforce. PEO services contractually assumes and manages employee administration for all or a majority of a client's workforce. Industry ratios identify the PEO arrangement as a long-term relationship with nearly 90% of clients and worksite employees remaining with the PEO for a year or longer. Worksite employees participate in the PEOs full range of employee benefits including, health benefits, dental, and life insurance, vision care, and retirement savings plans.
9- How many Americans are employed in a PEO arrangement?
It is estimated that 2-3 million Americans are currently co-employed in a PEO arrangement. PEOs are operating in every state and the industry continues to grow more at an average of 20% each year!
10- How does a PEO arrangement work?
Once a client company contracts with a PEO, the PEO will then co-employ the client's employees. The PEO assumes responsibility and liability for the employee administration such as risk management or workers compensation, personnel management, employee files, labor compliance and payroll tax filings. The client company retains responsibility for and manages product development and production, business operations, marketing, sales, and service. The PEO and the client share certain responsibilities for employment law compliance. As a co-employer, the PEO will often provide employee administration, labor compliance, workers compensation, employee handbooks and health benefits for the worksite employees.
11- Why would a small business use a PEO?
Small business owners want to focus their time and energy on growing their businesses, not operating their businesses! Often times, small business owners don't have the necessary human resource training to meet the demands of payroll, compliance, risk management, insurance and employee benefit programs. Outsourcing these responsibilities to a PEO only makes sense.
12- Wouldn't I lose control of my company?
No. The client retains ownership of the company and control over its operations. As co-employers, the PEO and client will contractually share or allocate employer responsibilities and liabilities. The PEO will generally only assume responsibilities and liabilities associated with a "general" employer for purposes of employee administration, payroll, taxes and benefits. The client usually retains those rights and responsibilities associated with "special" employers related to actual business operations. Essentially, the PEO will focus on employment-related issues and you will retain the responsibility of the business operations.
13- Why would a worker of a small business want a PEO as an employer?
Your staff seeks financial security, quality health insurance, a safe working environment, and opportunities for retirement savings. PEOs provide Fortune higher quality employee benefits including: health insurance and 401(k) savings plans, and aggressive workplace risk management and safety manuals. Job security is improved as the PEOs economy of scale permits a business to lower employment costs. Job satisfaction and loyalty increases as your employees are provided higher quality, professionsl, human resource services.
14- Is this just a "fire and re-hire" scheme?
No. Workers are not fired by the client business and rehired by the PEO. Instead, a worker becomes an employee of two employers in a co-employment relationship.
15- Is this a scheme to avoid providing health or retirement saving benefits to rank and file workers?
No, it is the opposite. Sometimes outsourcing to a PEO is the only way for an employer to provide the employees of a small business to receive Fortune 500 quality employee benefits like health insurance, dental and vision care, life insurance, retirement saving plans, job counseling, adoption assistance, and educational benefits. Without a PEO, a small business can often not afford nor manage these benefits.
16- Who is responsible for employment laws and regulations?
Both the client and the PEO have compliance obligations. However, PEOs provide your 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, maintaining employee files, employee handbooks, safety manuals, Age Discrimination in Employment Act, ADA, FMLA, HIPAA, Equal Pay Act, and COBRA. In many cases, these laws would not apply to workers at small businesses without the PEO relationship, since many statutes have exemptions based upon the number of workers in a work force. Once included in the PEOs workforce, the workers are protected by these laws.