What is a professional employer organization (PEO), and why would are many small and mid-sized companies and associations engaging them? There are many reasons, actually, such as:

Time savings, because direct-hire staff is relieved of administration of payroll and benefits plans

Reduced administrative burden on staff

Ability to offer better, less expensive benefit packages to employees

A potential reduction in legal liability and other obligations to employees

PEOs are service organizations that provide outsourcing, human resources, and payroll solutions for companies. As a client of a PEO, a company will engage the firm to perform a variety of tasks on its behalf, including:

Payroll

Employee benefits

Workers compensation

Safety and risk management

Employee recruiting, hiring, training, and development

The advantages of a PEO

By hiring the employees for one of its client companies, the PEO is considered the employer of record for tax and insurance purposes. This process is called co-employment, or joint employment. Although the client company is responsible for directing the daily activities of the employees, the PEO as the employer of record files paperwork for the employees under its own tax identification numbers. As compensation for administering the human resources and payroll duties of a client company, the PEO will charge the client a percentage of the total gross payroll. The client company will still be responsible for paying typical overhead costs, such Medicare, the employers portion of FICA, and unemployment insurance withholding. In the past, companies that leased employees enjoyed some tax loopholes that exempted them from certain expenses and offered tax shelters, but these have largely been eliminated. Still, PEOs can typically secure better and less expensive insurance coverage because all of the employees in its client companies are considered one groupand there is strength (and savings) in numbers.

These firms have been around for decades

The PEO concept dates back to the 1940s, when employee leasingthe precursor to PEOscame into being and grew in popularity from there. By 1985, more than 275 employee leasing companies were in operation in the U.S., a number that more than tripled by 2007, representing nearly 3 million workers. Today, PEOs exist in every state of the union, as well as in many countries around the world including Sweden, Germany, Russia, and the United Kingdom.
Wherever they are located, professional employer organizations should work with an experienced agent to gain access to top insurers offering a wide variety of quality PEO insurance. Such coverage can enhance the benefit packages offered to the employees of record who work for their client companies.