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What is a Professional Employer Organization (PEO)?

The PEO Arrangement and Employee Leasing are often mistakenly viewed as one in the same, but there is actually quite a difference.  The original employee leasing model transferred certain responsibilities from a client company to the employee leasing company which created the original concept of “fire, hire, and lease back”, which does not occur in the PEO arrangement. The client company assumes the PEO’s tax ID # for payroll tax purposes, but maintains complete control over their workforce, assigning who works where and when.

Professional Employer Organizations are companies that provide outsourced human resource services to small and mid sized firms. Client companies enter into a contract that establishes a co-employer relationship with the PEO. This agreement enables the client company to receive professional administrative services and support while improving employee access to benefit plans and services typically available only to larger employers.

A Professional Employer Organization assumes a significant portion of the employer’s responsibilities and associated risk for either all or a portion of the client’s workforce. A PEO’s services often include the management of Payroll and Payroll Taxes, Employee Benefits, Human Resources, and a Safety / Risk Plan. If a PEO relationship is terminated, the co-employees will cease to work for the PEO but will continue as employees of the company.

By comparison, a leasing or staffing service supplies new workers on a temporary or project-specific basis. These leased employees return to the staffing service for reassignment after completion of their work with the client company. Some would define employee leasing as a supplemental, temporary employment arrangement where one or more workers are assigned to a customer for a period of time.

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