What is a Professional Employment Organization (PEO)?

A Professional Employment Organization (PEO) is a service provider that manages HR functions for businesses through a co-employment relationship. PEOs offer various services, enabling companies to outsource HR tasks effectively.

Services Offered by PEOs

PEOs handle a range of HR functions, including payroll processing, tax administration, regulatory compliance, recruiting, onboarding, benefits administration, workers’ compensation coverage, and candidate screening.

Co-Employment Relationship with PEOs

When engaging with a PEO, businesses enter into a co-employment arrangement. In this setup, the PEO and the client share employer responsibilities and liabilities contractually. The client retains control over daily operations, while the PEO manages administrative tasks and employee-related matters.

Cost of PEO Services

PEOs typically charge an administrative fee, either as a fixed monthly fee per employee or as a percentage of overall payroll, which ranges from 2% to 11%.

PEO vs. HR Department

Outsourcing to a PEO does not replace an HR department but enhances its functions. PEOs allow HR teams to focus on strategic matters while handling routine tasks efficiently. PEOs do not manage staffing or provide employee leasing; recruitment remains under the HR department’s purview.

Advantages and Disadvantages of PEOs

Advantages of using a PEO include relief from HR tasks, domestic compliance support, enhanced HR capabilities, and long-term cost savings. However, PEOs do not support international expansion, take full legal responsibility for international compliance, or assist in creating employment contracts.

Difference Between PEOs and Employers of Record (EORs)

EORs, or global PEOs, assume full legal responsibility for employees, manage global payroll, facilitate HR tasks, and ensure compliance with labor laws. Choosing between a PEO and an EOR depends on a company's growth plans and international presence.

Decision Between PEO and EOR Services

Opting for a PEO is suitable for companies with an existing local workforce seeking to enhance HR functions and ensure regulatory compliance. EOR services are ideal for businesses planning international expansion, requiring comprehensive global HR support and legal compliance.

Understanding the distinctions between PEOs and EORs is crucial for businesses determining the most suitable HR outsourcing solution based on their needs and growth trajectory.