Frequently Asked Questions

Clear answers to your most common PEO questions


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. 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.

Business owners want to focus their time and energy on the "business of their business" and not on the "business of employment." As businesses grow, most owners do not have the necessary human resource training; payroll and accounting skills, the knowledge of regulatory compliance, or the backgrounds in risk management, insurance and employee benefit programs to meet the demands of being an employer. PEOs give small-group markets access to many benefits and employment amenities they would not have otherwise.

No. The client retains ownership of the company and control over its operations. As co-employers, the PEO and client will contractually share or allocate employer responsibilities and liabilities. The PEO will generally only assume responsibilities and liabilities associated with a "general" employer for purposes of employee administration, payroll, taxes and benefits. The client usually retains those rights and responsibilities associated with "special" employers related to actual business operations. As such, the client will continue to have responsibility for worksite safety and compliance. The PEO will be responsible for payroll and employment taxes, will maintain employee files, employee handbooks and health benefits. Because the Professional Employer Organization may also be responsible for workers' compensation, the PEO will also focus on improving safety manuals and compliance. In general terms, the PEO will focus on employment-related issues and the client will be responsible for the actual business operations.

The average client customer of a PEO is a small business with 16 worksite employees, though larger businesses also find value in a PEO arrangement. These small business customers include every single type of business from accountants to small manufacturers and every profession in between including doctors, retailers, mechanics and more. Other forms of HR Outsourcing include the ASO and BPO model's which are designed to handle larger companies'

Small business owners want to focus their time and energy on the "business of their business" and not on the "business of employment." As businesses grow, most small business owners don't have the necessary human resource training; payroll and accounting skills; knowledge of regulatory compliance; or backgrounds in risk management, insurance and employee benefit programs to meet the demands of being an employer. Human Resource Outsourcing takes over the employee administration for the business owner allowing them to grow their business.

Like employee leasing, a temporary staffing service recruits employees and assigns them to clients to support or supplement the client's workforce in special work situations, such as employee absences, temporary skill shortages, or seasonal workloads. These workers are traditionally only a small portion of the client's workforce. Professional Employer Organization services, contractually assumes and manages employee administration for all or a majority of a client's workforce. Industry ratios identify the PEO arrangement as a long-term relationship with nearly 90% of our clients and worksite employees remaining with the PEO for a year or longer. Worksite employees participate in the PEO's full range of employee benefits including, health benefits, dental, and life insurance, vision care, and retirement savings plans.

The PEO assumes responsibility and liability for payment of wages and compliance with all rules and regulations governing the reporting and payment of federal and state taxes on wages paid to its employees. PEO's have long established their role as reporting income and handling withholding, FICA and FUTA. In 2002, the IRS issued guidance confirming the ability of human resource outsourcing entities (including PEO services) to offer qualified retirement benefits.

Many states recognize the PEO as the employer of worksite employees for purposes of providing workers' compensation coverage.

Once a client company contracts with a PEO, the PEO will then co-employ the client's worksite employees. In the relationship among a Professional Employer Organization, a worksite employee, and a client company, there exists a co-employment relationship in which both the PEO and client company have an employment relationship with the worker. The PEO assumes responsibility and liability for the employee administration such as risk management or workers compensation, personnel management, employee files, labor compliance and payroll tax filings. The client company retains responsibility for and manages product development and production, business operations, marketing, sales, and service. The PEO and the client share certain responsibilities for employment law compliance. As a co-employer, the PEO will often provide employee administration, labor compliance, workers compensation, employee handbooks and health benefits for the worksite employees.

It is estimated that 2-3 million Americans are currently co-employed in a PEO arrangement. The average PEO has grown more than 20 percent per year for each of the last six years, according to a survey of NAPEO members. About 700 PEOs that offer a wide array of employment services and benefits are operating today in 50 states. The PEO industry generates approximately $42 billion in gross revenues annually. PEOs have an 86 percent client retention rate due to strong client satisfaction. NAPEO member companies are estimated to account for more than 70 percent of the industry's gross revenues.

Premium Free Services

Our services are absolutely free to you

We show business owners ways to enhance their organization's employee management functions from employee motivation to risk avoidance and safety. We offer your company ways to efficiently and effectively transfer risk and liability. We free up your time, providing the expertise and support, so you can concentrate on your core business functions and focus on the growth and profit of your business.

We offer your company ways to efficiently and effectively transfer risk and liability. We free up your time, providing the expertise and support, so you can concentrate on your core business functions and focus on the growth and profit of your business.