The Role And Purpose of A PEO

What Are Professional Employer Organizations & What That Means For You As An Employee?

Professional Employer Organizations (PEO) offer administrative support and management services. Simply put, a PEO acts on behalf of a client, similar to the employer of the workforce.
Services can include HR management, recruiting, onboarding, payroll, and managing benefits, to name but a few. A PEO provides all the infrastructure and services needed to run a business without the hassle.

How Is PEO Integrated Into The Business Processes?

The PEO is in charge of handling most of the employee-related admin and tasks. They hire new staff directly, and handle the payroll, benefits, and taxes of each employee.

The client, or main business, is still in charge of the day-to-day tasks performed by each employee. For tax and insurance purposes, the PEO is listed as the employer on record, but this only refers to admin and not work assignments—these will continue to come from the company. Some markets even refer to PEOs as co-employers.

Not A New Business Concept

Modern-day PEO came into existence in the 1980s, but the term ‘employee leasing’ was first coined in the 1960s. While employee leasing is not the same as a PEO, there are distinct similarities, and it’s said to have been the reasoning behind the development of PEOs.

In the 1980s, people began to outsource payroll services to external companies. Shortly thereafter, employee compliance issues and labor disputes emerged, and new employee and HR laws were instituted. This made admin management a time-consuming task, especially when a company was looking to grow at the same time. This led to outsourcing of these tasks, something that PEOs have gladly added to their service list.

Research has found that the average business owner will spend 25% of their time doing employee-related paperwork. PEOs provide a cost-effective solution to this time-consuming task and have even been found to reduce employee turnover and assist businesses in remaining operational. It also means that all the legislative aspects of the business are covered and up to date, and this is not something employers need to concern themselves with.

PEO As A Co-Employer

While some markets refer to PEO as co-employment, it would be more accurate to have it listed as a form of PEO.

When you refer to co-employment, you refer to two different companies that both take on the roles and responsibilities of the employer. One is purely from an operational perspective, while the other is focused on the admin side of things. Both companies have roles and responsibilities related to the employee, and often, a tripartite agreement is set out to indicate the role each person plays within the company.

This means that all employee information is stored by one entity, making it easy to update whenever necessary, and creating a chain of custody for business admin. All data is in one convenient place, which works to both the employee’s and the employer’s advantage.

Alternative Forms Of Employer Assistance

A PEO provides administrative and compliance services to an employer that seeks out their services. In contrast, an employee leasing company will supply employees to their client. Once the job has been completed, the employee is leased to another company.

The employee leasing model led to the development of the PEO model, and as a result, people tend to confuse the two.

Another option is making use of a temporary staffing agency to supply staff to clients on a need to need basis. This is commonly used when a staff member needs extended time off, and needs someone to cover their position.

Of course, this can be completely outsourced to supplement your existing administrative workforce by using Administrative Services Outsourcing and Human Resources Outsourcing. In this case, the employer is still in full control of all aspects of the business.

International PEO

An international PEO allows businesses to hire and manage employees from any market, with the PEO becoming the global Employer of Record. This makes it easy for companies to hire new employees without needing to set up a business unit in an international market—it’s an easy way to establish yourself globally.

International PEO is often utilized when a company is looking to expand into a foreign market but has limited resources, time, and bandwidth to do so. All the employee-related admin, and the legal aspects of the business, are managed exclusively by the international PEO, giving employers the freedom to focus on daily tasks and business objectives.

The global expansion comes with its own set of risks and uncertainties. Finding qualified, reliable employees shouldn’t be one of them. That is where the PEO steps in. PEO simplifies the process, reduces business costs, absorbs most of the risk, manages multicounty operations, and provides accelerated market entry. By finding the right PEO for the state or region a company is expanding into, they can grow their reach without having to navigate local red tape.

An Opportunity To Grow

Domestic PEO and international PEO both provide very similar functions, with the distinct difference being that the international PEO allows businesses to enter international markets.

From a more local perspective, PEO handles all the groundwork for businesses to operate, and ensures compliance across the board. This has the potential to grow to international PEO, where the framework is amplified, and upgraded to accommodate international standards and laws wherever the business is seeking to operate.

As the Employer of Record, the PEO can manage all administrative employee processes from start to finish. It takes all the grunt work away from the employer, giving them a chance to focus on business operations and managing the workflow.

PEO can benefit businesses of all sizes, and the services they offer can facilitate growth, reduce expenses, and accelerate productivity. They take outsourcing to the next level and provide a professional service that allows companies to focus on operations without getting entangled in admin issues best left to those with experience in the field.

About the author: Lorie is a full-time writer and editor with a background in logistics management and freight forwarding, covering a variety of topics and news within the industry.

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