PEO is an acronym for professional employer organization. PEOs are
human resources experts that provide a service which allows small- and
mid-sized businesses to cost-effectively outsource critical personnel
functions. This arrangement helps the business to more clearly focus
time and resources on their core competencies.
How it works
Businesses who need help managing increasingly complex employee-related matters—
such as employment law, workers' compensation, unemployment insurance claims,
payroll, payroll tax compliance and benefits plans-can contract with a PEO to share
responsibilities for those matters in an arrangement called co-employment.
Under a contract of co-employment, both the business and the PEO have a relationship
with each individual employee. The PEO becomes the employer of record for tax
purposes and assumes responsibility for payroll and related payroll tax filing, benefits
administration, record keeping and unemployment or workers' compensation claims.
The business retains full ownership of the company and continues to direct day-to-day
worksite operations, hiring/firing of staff, determining wage levels, and strategic
Because PEOs combine the employees of several companies into one large buying pool,
they can often secure better rates on HealthCare and workers' compensation coverage.
The net effect can be significant savings for client businesses.