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How Do PEOs Work?

How Do PEOs Work?


PEOs or Professional Employer Organizations are human resources partners that help small and mid-size businesses stay competitive. A PEO allows your business to hand over all HR and administrative duties to a single vendor. They can typically handle all of the following:

  • Payroll
  • Benefits administration
  • Human resources
  • Regulatory compliance
  • Risk management

Some PEOs offer additional services such as recruiting, training and onboarding services, employee performance reviews, management training and coaching, and more.

In order to offer these services, a PEO will operate alongside your business in a relationship known as “co-employment.” Co-employment basically means you can share responsibility for your HR duties and regulatory compliance with the PEO. On paper, you and the PEO will both be the employers of your staff, allowing the PEO to take over duties that only an employer can normally do.

Both your business and the PEO have specific roles:

  • The PEO is the “employer of record” and manages all HR responsibilities including payroll, tax withholding, unemployment claims, etc. It is the co-employment arrangement that allows them to legally operate in this capacity.
  • Your business is the worksite employer and retains full control over your staff. You continue to decide work responsibilities and day-to-day duties for your employees. You are the executive in the relationship and you only “share” employment for the purposes of reducing the burden of HR work.

Why do businesses use PEOs?

There are three main reasons why a business will contract with a PEO:

  • Get HR work done right. As a business grows, the HR work becomes much more complex. Eventually it is either too much for the owner and managers to do themselves, or it takes away their time from the work of leadership and growing the business. Working with a PEO allows your leadership team to focus on what’s most important, without worrying that rules are being broken or that HR tasks are falling by the wayside.
  • Work with a single vendor. A PEO is not the only HR solution for a growing business. There are human resources outsourcing (HRO) companies that specialize on certain aspects—such as payroll. But as you grow, this can leave you in the costly position of outsourcing to multiple vendors (one for payroll, one for benefits, one for workers compensation, etc.). Working with a PEO allows a single vendor to manage all aspects of HR and compliance.
  1. Improve employee benefits. Many PEOs will focus on entering the benefits marketplace and securing discounted benefits packages for their clients. In many cases, a PEO can get you better benefits at better rates than your organization would qualify for on its own.

Do you need better HR—at a lower cost? At Einstein HR, our mission is to make your business run better. We’ll give you a free quote and help you develop a customized human resources, payroll or PEO service to fit your needs. Fill out the form to your right or contact us and get a free quote today.

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