Professional employer organizations (PEOs) provide human resource services for their small business clients—paying wages and taxes and often assisting with compliance with myriad state and federal rules and regulations. In addition, many PEOs also provide workers with access to 401(k) plans, health, dental and life insurance, dependent care, and other benefits not typically provided by small businesses. In doing so, they enable clients to cost-effectively outsource the management of human resources, employee benefits, payroll and workers' compensation. PEO clients can thus focus on their core competencies to maintain and grow their bottom line.
Any business can find value in a PEO relationship. The average cliclient company is a business with 2 to 100 worksite employees. Increasingly, larger businesses also are finding value in a PEO arrangement, because PEO's offer robust web-based HR technologies and expertise in HR management. PEO's can partner with companies that have 500 or more employees and work in conjunction with their existing human resources department.
PEO clients include different types of businesses ranging from accounting firms to high-tech companies and small manufacturers. A broad range of professionals, including doctors, retailers, mechanics, engineers and plumbers, also benefit from PEO services.
Once a client company contracts with a PEO, the PEO will then co-employ the client's work-site employees. In the arrangement among a PEO, a work-site employee and a client company, there exists a co-employment relationship, which involves a contractual allocation and sharing of employer responsibilities between the PEO and the client pursuant to a client service agreement (CSA). The PEO typically remits wages and withholding's of the work-site employees and reports, collects and deposits employment taxes with local, state and federal authorities. The PEO also issues the Form W-2 for the compensation paid by it under its EIN. The client company retains responsibility for and manages product development and production, business operations, marketing, sales, and service. The PEO and the client will share certain responsibilities, as determined in the CSA. As a co-employer, the PEO will often provide a complete human resource and benefit package for work-site employees. .