Professional Employer Organization (P.E.O.)

Definition of a Professional Employer Organization

A Professional Employer Organization (PEO) is defined as an organization that provides an integrated and cost effective approach to the management and administration of the human resources and employer risk of its clients, by contractually assuming substantial employer rights, responsibilities, and risk and, 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:

Assigns workers to 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 and may share such responsibility with the client, consistent with 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 which 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 such as personnel management, health benefits, workers' compensation claims, payroll, payroll tax compliance, and unemployment insurance claims. Businesses contract with a PEO to assume these responsibilities, which then allows the client to concentrate on the revenue-producing side of its operations.

A PEO provides integrated services which more cost effectively manage critical human resource responsibilities and employer risks for clients. PEOs deliver these services by establishing and maintaining an employer relationship with the workers assigned to its client and by contractually assuming substantial employer rights, responsibilities, and risk.

Benefits of Using a PEO

For the business:

Controls costs. Saves time and paperwork hassles.
Provides professional compliance (e.g., payroll, IRCA, EEOC).
Reduces turnover and attracts better employees.
Claims management (e.g., workers' compensation, unemployment insurance).
Provides better benefits package(s).
Provides professional human resource services (e.g., employee handbooks, forms, policies and procedures).
Reduces accounting costs.

For the employee:

Comprehensive benefits previously unavailable.
Better employer/employee communications.
Payroll on-time and accurate.
Professional assistance with employment-related problems.
Professional orientation and employee handbook.
Extends statutory protection to more employees.
Up-to-date information on labor regulations, workers' rights and worksite safety.
Efficient & responsive claims processing.
Portable benefits (employees can move from one PEO client to another without loss of eligibility for benefits).

For the government:

Consolidates several small companies' employment tax filings into one.
More professional preparation and reporting.
Accelerated collection of taxes.
Extends medical benefits to more workers.
Expands the communication of government requirements and changes to small businesses.
Resolves many problems before they reach court.
Allows government agencies to reach business through a single-employer entity.

What is Co-Employment?

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.

When evaluating the employer role of either the PEO or the client, the facts and circumstances of each employer obligation should be examined separately, since 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, instrumentalities, and place of work. The PEO ensures that worksite employees are provided with a workplace 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 worksite employees, as well as a right to 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.

The Role of PEOs in Today's Workplace

One Response to Market Demands For Change American business is undergoing fundamental changes in human resource management, and the PEO industry is one 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 quality, low cost health care, retirement savings plans, and other employee benefits for themselves and their families.

In response to these demands, the PEO industry evolved from the need to divide the "business of business" into manageable parts and the need for small businesses to achieve economies of scale.

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. Professional employer organizations offer this expertise to their clients.

By providing these services, professional employer organizations enable their clients to concentrate on their business without the challenges and distractions associated with the "business of employment." As a result, PEOs enhance the profitability of their client companies. Further, 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

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 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.

For more information contact us at 775.853.5433 or info@appstaff.ca





Professional Employer Organization (P.E.O.) Definition of a Professional Employer Organization A Professional Employer Organization (PEO) is defined as an organization that provides an integrated and cost effective approach to the management and administration of the human resources and employer risk of its clients, by contractually assuming substantial employer rights, responsibilities, and risk and, 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: Assigns workers to 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 and may share such responsibility with the client, consistent with 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 which 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 such as personnel management, health benefits, workers' compensation claims, payroll, payroll tax compliance, and unemployment insurance claims. Businesses contract with a PEO to assume these responsibilities, which then allows the client to concentrate on the revenue-producing side of its operations. A PEO provides integrated services which more cost effectively manage critical human resource responsibilities and employer risks for clients. PEOs deliver these services by establishing and maintaining an employer relationship with the workers assigned to its client and by contractually assuming substantial employer rights, responsibilities, and risk. Benefits of Using a PEO For the business: Controls costs. Saves time and paperwork hassles. Provides professional compliance (e.g., payroll, IRCA, EEOC). Reduces turnover and attracts better employees. Claims management (e.g., workers' compensation, unemployment insurance). Provides better benefits package(s). Provides professional human resource services (e.g., employee handbooks, forms, policies and procedures). Reduces accounting costs. For the employee: Comprehensive benefits previously unavailable. Better employer/employee communications. Payroll on-time and accurate. Professional assistance with employment-related problems. Professional orientation and employee handbook. Extends statutory protection to more employees. Up-to-date information on labor regulations, workers' rights and worksite safety. Efficient & responsive claims processing. Portable benefits (employees can move from one PEO client to another without loss of eligibility for benefits). For the government: Consolidates several small companies' employment tax filings into one. More professional preparation and reporting. Accelerated collection of taxes. Extends medical benefits to more workers. Expands the communication of government requirements and changes to small businesses. Resolves many problems before they reach court. Allows government agencies to reach business through a single-employer entity. What is Co-Employment? 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. When evaluating the employer role of either the PEO or the client, the facts and circumstances of each employer obligation should be examined separately, since 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, instrumentalities, and place of work. The PEO ensures that worksite employees are provided with a workplace 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 worksite employees, as well as a right to 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. The Role of PEOs in Today's Workplace One Response to Market Demands For Change American business is undergoing fundamental changes in human resource management, and the PEO industry is one 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 quality, low cost health care, retirement savings plans, and other employee benefits for themselves and their families. In response to these demands, the PEO industry evolved from the need to divide the "business of business" into manageable parts and the need for small businesses to achieve economies of scale. 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. Professional employer organizations offer this expertise to their clients. By providing these services, professional employer organizations enable their clients to concentrate on their business without the challenges and distractions associated with the "business of employment." As a result, PEOs enhance the profitability of their client companies. Further, 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 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 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. For more information contact us at 775.853.5433 or info@appstaff.ca

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