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  1. What is a Professional Employer Organization?
  2. PEOs Are Co-Employers
  3. PEOs — One Response to Market Demands For Change
  4. Helping Entrepreneurs With the "Business Of Employment"
  5. Helping American Workers and Their Families
  1. What is a Professional Employer Organization?

    Professional employer organizations (PEOs) enable clients to cost-effectively outsource the management of human resources, employee benefits, payroll and workers' compensation. PEO clients focus on their core competencies to maintain and grow their bottom line.

    Businesses today need help managing increasingly complex employee related matters such as health benefits, workers' compensation claims, payroll, payroll tax compliance, and unemployment insurance claims. They contract with a PEO to assume these responsibilities and provide expertise in human resources management. This allows the PEO client to concentrate on the operational and revenue-producing side of its operations.

    A PEO provides integrated services to effectively manage critical human resource responsibilities and employer risks for clients. A PEO delivers these services by establishing and maintaining an employer relationship with the employees at the client's worksite and by contractually assuming certain employer rights, responsibilities, and risk.

    Businesses across America have discovered the incredible value of PEOs because they provide:

    • 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.
  2. PEOs Are Co-Employers

    The PEO relationship involves a contractual allocation and sharing of employer responsibilities between the PEO and the client. This shared employment relationship is called co-employment.

    As co-employers with their client companies, PEOs contractually assume substantial employer rights, responsibilities, and risk through the establishment and maintenance of an employer relationship with the workers assigned to its clients. More specifically, a PEO establishes a contractual relationship with its clients whereby the PEO:

    • Co-employs workers at client locations, and thereby assumes responsibility as an employer for specified purposes of the workers assigned to the client locations.
    • Reserves a right of direction and control of the employees.
    • Shares or allocates with the client employer responsibilities in a manner consistent with maintaining the client's responsibility for its product or service.
    • Pays wages and employment taxes of the employee out of its own accounts.
    • Reports, collects and deposits employment taxes with state and federal authorities.
    • Establishes and maintains an employment relationship with its employees that is intended to be long term and not temporary.
    • Retains a right to hire, reassign and fire the employees.

    Businesses today need help managing increasingly complex employee related matters, including employee relations, health benefits, workers' compensation claims, payroll, payroll tax compliance, and unemployment insurance claims. They contract with a PEO to assume these responsibilities and provide expertise in human resources management. This allows the PEO client to concentrate on the operational and revenue-producing side of its operations.

    A PEO provides integrated services to effectively manage critical human resource responsibilities and employer risks for clients. A PEO delivers these services by establishing and maintaining an employer relationship with the employees at the client's worksite and by contractually assuming certain employer rights, responsibilities, and risk.

    When evaluating the employer role of either the PEO or the client, the facts and circumstances of each employer obligation should be examined separately, because neither party alone is responsible for performing all of the obligations of employment. Each party will be solely responsible for certain obligations of employment, while both parties will share responsibility for other obligations. When the facts and circumstances of a PEO arrangement are examined appropriately, both the PEO and the client will be found to be an employer for some purposes, but neither party will be found to be "the" employer for all purposes.

    Both the PEO and the client company establish common law employment relationships with worksite employees. Each entity has a right to independently decide whether to hire or discharge an employee. Each entity has a right to direct and control worksite employees. The PEO directs and controls worksite employees in matters involving human resource management and compliance with employment laws, and the client company directs and controls worksite employees in manufacturing, production, and delivery of its products and services.

    The client company provides worksite employees with the tools, instruments, and place of work. A PEO can assist in ensuring that worksite employees are provided with a worksite that is safe, conducive to productivity and operated in compliance with employment laws and regulations. In addition, the PEO provides worksite employees with workers' compensation insurance, unemployment insurance and a broad range of employee benefits programs.

    PEOs create an employment relationship with their workers. This relationship exists in fact, not just in form. PEOs can manage the risks attendant to the personnel functions that they perform only if they establish an employment relationship with their worksite employees. Unless a PEO has a right to direct and control, hire, supervise, discipline and discharge these employees, the PEO will merely assume liability without having a means to manage that liability.

    PEOs manage their employment liability exposure by monitoring and requiring compliance with employment laws, developing policies and procedures that apply to worksite employees, supervising and disciplining worksite employees, exercising discretion related to hiring new employees, and ultimately terminating worksite employees who do not comply with requirements established by the PEO.

  3. PEOs — One Response to Market Demands For Change

    American business is undergoing fundamental changes in human resource management, and the PEO industry is a response to market demands. There are several factors driving the growth of the industry. First, over the last two decades, this nation has seen a significant increase in employment-related federal, state, and local laws and regulations. Second, the expertise required to manage a small to mid-sized business has outgrown the experience and training of many entrepreneurs who started these businesses. Third, working Americans demand comprehensive, affordable health care, retirement savings plans, and other employee benefits for themselves and their families. In response to these demands, the PEO industry has divided business into several manageable parts.

  4. Helping Entrepreneurs With the "Business Of Employment"

    PEOs offer to their clients and worksite employees the services and expertise of a personnel department within a large corporation. Few, if any, small businesses can afford a full-time staff consisting of an accountant, a human resource professional, a lawyer, a risk manager, a benefits manager, and a manager of information services. PEOs offer this expertise to their clients.

    By providing these services, PEOs enable their clients to concentrate on their core business without the challenges and distractions associated with the "business of employment." As a result, PEOs enhance the profitability of their client companies. The PEO's economy of scale enables each client company to lower employment costs and increase the business's bottom line. The client can maintain a simple in-house HR infrastructure or none at all by relying on the PEO. The client also can reduce hiring overhead. Costs related to monitoring of, and compliance with, employment laws are reduced, as are the often significant costs of failure to comply with such laws. In addition, the PEO provides time savings by handling routine and redundant tasks for its clients. This enables the business owner to focus on the company's core competency and grow its bottom line.

  5. Helping American Workers and Their Families

    In addition to providing important services to their business clients, PEOs offer substantial advantages to worksite employees. In many cases, these employees would not be provided the number, or quality, of benefits that a PEO can offer. These benefits may include health insurance, retirement savings plans, disability insurance, life insurance, dependent care reimbursement accounts, vision care, dental insurance, employee assistance plans, job counseling and educational benefits. Each individual small business's cost of establishing and administering this range of plans would be prohibitive. However, due to economies of scale, PEOs can sponsor and offer these plans at an affordable cost.

    In many cases, employees of small businesses would not be protected by employment laws in the absence of the PEO relationship. Because worksite employees are included in the larger workforce of a PEO for purposes of determining statutory coverage, they are in many cases covered by employment laws that would not have otherwise applied. Further, there is generally a higher rate of compliance with these laws by a PEO than by its clients because PEOs provide full-time staff who are responsible for monitoring and ensuring compliance with such laws.

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