What is a PEO?

A PEO’s services are the best option for small and medium businesses to offload administrative tasks. Businesses anywhere in the United States, with any number of employees, in addition to businesses with employees in multiple locations can greatly benefit by partnering with PEO Companies.

Although the PEO, also referred to as an Employee Leasing Company, has been utilized by companies for many years, we have discovered that it is either very well known within a region or virtually invisible. Because of this truth, we have developed this brief primer to provide an overview of the employee leasing service and its potential benefits, including outsourced HR and benefit outsourcing. We go into more detail on this and other issues in our PEO & HRO Buyer’s Guide.

PEO’s services assume administrative tasks such as processing payroll, filing payroll taxes, offering employee benefit options and obtaining worker’s comp insurance for their clients. In addition, PEO’s offer consulting regarding issues such as government regulations and reporting requirements. The PEO also establishes a co-employment relationship with their client’s employees that offset certain risks to their client’s business, for example, worker’s compensation and unemployment tax. Because of this combination of reducing administration and mitigating business risk, business owners and managers can focus on one thing, growing their business and increasing profitability, not on time consuming administrative tasks. The employer enjoys these benefits and does not give up control on day-to-day management of employees, including making hire and fire decisions.

What is a PEO? It’s not just outsourced hr and benefit outsourcing.

While the majority of employee leasing service companies provide outsourced HR and benefit outsourcing, the services beyond these ‘core’ services usually varies widely. Our PEO Services Matching Tool can help you review the differences and find a match with your desired level of service. Below is a brief list of some standard employee leasing services that most PEO’s offer;

Benefit Outsourcing – to maintain a competitive edge and retain key employees, small businesses must compete with large companies that have access to extensive employee benefit programs. The PEO provides access to a broad range of medical, dental, retirement and other insurance offerings. Employers must also insure compliance with government regulations related to benefits such as COBRA. Understanding and complying with COBRA laws is yet another burden placed on employers. Most PEO's services will assist with this compliance as part of its benefit outsourcing.
Outsourced HR – reporting new hires to your state should be relatively simple. However, as your business grows, adding additional staff in new states with new reporting requirements is yet another burden added to the employer. The PEO outsourced HR service will provide guidance on employment regulations and reporting requirements. In addition, questions regarding hiring, firing and interviewing can typically be answered by the employee leasing service. The PEO provides access to human resource experts (hence the term, outsourced hr) that will give you advice on compliance and recruiting, and will also put together employee handbooks and employment procedure manuals. While there may be differences in employee leasing service organizations and how they provide outsourced HR services, most provide a level to meet your needs.
Payroll - payroll is important and time consuming. The PEO will process your payroll, deliver checks, perform direct deposits and file your payroll taxes. As with outsourced HR, if you have employees in multiple states, the PEO's services will ensure you have the proper filing’s associated in each state. When working in multiple states the burden of filing and understanding the rules and regulations of each state is offset because it is taken on by the PEO Company.
Worker's Comp - a wide variety of rules dictate the level of worker's comp insurance required for your business. The PEO generally will incorporate this as part of their offering but may also allow you to keep your individual policy. At times you may benefit directly by obtaining better rates. Sometimes these savings can offset the PEO's cost of services. Typically, using the PEO’s worker’s comp offering will include additional services such as reviewing and processing claims, something a small business has no time or additional funds to do.
Safety - because the employee leasing service may be responsible for your worker's comp they may also provide access to risk & safety consultants. These consultants review your facility, provide advice or may even develop a full-blown safety program tailored exclusively for your company.
Recruiting - while not necessarily what we call a core outsourced HR offering, the PEO may provide access to a recruiter or job posting service. Along the lines of saving businesses time and money, some PEOs provide resume screening services while others will actually be able to interview directly with prospects, providing you with a valid and filtered list of candidates, again saving you time.
Training Services - This area is also not usually a part of the core outsourced HR offering, however if offered, training may be either local or web based, often times provided at a discounted fee.
Performance Management – Another non-core offering the employee leasing service may provide is guidance on performing reviews, identifying key employees or putting in place compliance performance based programs.
Outplacement Services - during downtimes, the PEO can advise businesses on how to limit risk when performing a reduction in work force. The PEO may also provide outplacement assistance, the goal being to quickly get former employees back to work with another organization.
Background screening - The PEO's services may include a basic level of background screening to assist in the hiring process and may also provide access to discounts because of their volume based pricing.
Drug Screening - Just like background screening, the PEO's services may include a basic level of drug screening to insure you hire individuals that are not a high-risk to your organization, as well as providing access to discounts because of volume based pricing.

About NAPEO

NAPEO, the National Association of Professional Employer Organizations, is the largest trade association for professional employer organizations nationwide. NAPEO has nearly 400 PEO members operating in all 50 states, representing approximately 91 percent of the revenues of the $68 billion industry. NAPEO's members range in size from start-up PEOs to large, publicly held companies with years of success in the industry. The Source for PEO Education®, NAPEO provides its members with the very best educational services and business resources including conferences, seminars, a monthly magazine, online services, marketing resources, PR support and more. The Voice of the PEO Industry®, NAPEO also embraces a commitment to furthering and protecting the interests of its PEO members at all levels of government through proactive lobbying efforts and timely communications on regulatory and legislative issues of interest.

NAPEO states that they are the largest trade association for professional employer organizations nationwide with approximately 400 PEO members, operating in all 50 states within the US. In 2009 they promoted that their PEO members represent approximately 91% of the revenues of the industry. NAPEO member companies can vary in size from new, start-up PEOs to established publicly held companies. NAPEO provides its members access to educational services and resources, such as national conferences, seminars and magazines. NAPEO is oftentimes viewed as a voice of the employee leasing service industry and provides its PEO members timely communications on regulatory and legislative issues.

In 2009, NAPEO stated that PEOs provide business owners with:

Relief from the burden of employment administration.
A wide range of personnel management solutions through a team of professionals.
Improved employment practices, compliance and risk management to reduce liabilities.
Access to a comprehensive employee benefits package, allowing clients to be competitive in the labor market.
Assistance to improve productivity and profitability.

Therefore, a PEO’s services offer you with employment administration relief, such as transferring or sharing many employer liabilities. PEO’s allow you to enhance the total quality of your organization because of this additional freedom from responsibilities, resulting in greater efficiency and productivity, with NAPEO offering valuable information and resources as well.