What Is a PEO Company? – An Introduction for Beginners

It goes without saying that there is more than one way to run a business. When it comes to hiring and human resources (HR) most companies do everything in-house. That is the standard. Yet growing numbers of businesses are turning hiring and HR over to a PEO.

Perhaps you’ve heard of a PEO but are not familiar with the concept. You have been wondering what is a PEO company . Well, you are in luck. This is your introduction to the world of PEOs and what they do. The following information comes from Dallas-based BenefitMall, a general agency that also helps companies connect with PEO providers.

Professional Employer Organizations

To start with, PEO is an acronym that stands for ‘professional employer organization’. Some people substitute the word ’employer’ with ’employment’. Regardless, a PEO is a professional co-employer. It is a company that makes money by co-employing workers who do actual work for other companies.

The Co-Employment Arrangement

Under a PEO arrangement, PEO companies and their clients become co-employers of the employees in question. Another way to say it is that the PEO and its client share employees – at least on paper. Each party gets something different out of the deal.

Let’s say the Acme Widget Company signs up with Smith’s PEO Service. All of Acme’s employees instantly become co-employed by Smith’s. Smith’s is responsible for taxes, workers comp, reporting, etc. But because the workers still perform work for Acme, Acme maintains control over what they do on a day-to-day basis.

Outsourcing HR Functions

To companies like the fictional Acme Widget Company, partnering with a professional employer organization can make good financial sense. PEO providers bring a lot to the table in the sense that they tend to handle all the HR functions that would normally be kept in house by the original employer. There are lots of benefits to such an arrangement. PEO benefits include:

• Saving money on HR costs.
• Improving compliance with labor laws.
• The ability to outsource payroll and benefits.
• Outsourcing recruiting and hiring.
• Access to HR expertise and guidance.
• Better liability and risk management.
• Improved workforce planning.

PEO providers specialize in HR. Performing HR functions is at the very core of their business models. In that sense, they are not all that different from temp agencies. What separates them from their temporary employment counterparts is that they legally become co-employers of workers who have permanent positions with another company.

Who Utilizes PEO Services

At this point you might be wondering what types of organizations utilize PEO services. BenefitMall says that, more often than not, PEOs work with small businesses. These are companies with fewer than 500 employees who would prefer to channel limited resources to things other than HR.

Companies pay their PEOs a predetermined rate on a per employee basis. In exchange, they get full-time employees they can utilize in exactly the same way they would utilize exclusively employed workers. The PEO handles everything from an administrative standpoint. Benefits, payroll deductions, taxes, etc. are all handled by the PEO.

An Arrangement That Works

The PEO concept is difficult for some business owners to wrap their brains around. It seems counterintuitive to what business owners expect. But it’s actually an arrangement that works for a lot of companies.

Any business owner thinking of contracting with a PEO should do plenty of research beforehand. It is important to truly understand all the implications of working with a PEO before taking that leap. And of course, it’s important that a company continue the search for a PEO until management finds one that they are confident they can work with.