Frequently Asked Questions
A PEO, or Professional Employer Organization, provides business solutions to clients who are interested in outsourcing crucial needs such as payroll, workers’ compensation, HR and even employee benefits. PEOs, sometimes referred to as employee leasing companies, are often a more affordable option to keeping these services and departments in-house.
Nearly any business can use a PEO for different reasons. Small businesses may have the most to gain from a PEO as the business owner is often in charge of payroll, HR and workers’ comp insurance yet may not have a system for employee benefits. This can lead to a hectic, unproductive and unhappy workplace. Medium and large businesses still have lots to gain from PEOs, though, as they can trim overhead costs through outsourcing and find more affordable workers’ comp insurance. Individual business owners may turn to PEOs for workers’ comp coverage for high-risk industries like construction.
A client (that’s you!) contracts with a PEO through a detailed arrangement that outlines the PEO’s responsibilities and liabilities in the relationship. The PEO co-employs the worksite employees but the business owner remains in charge of the business and daily operations.
At the state and federal levels, PEOs operate as employers. Although, individual states may have certain restrictions, regulations or guidelines for registration and licensing. PEOs are generally expected to withhold and remit federal and state taxes along with providing workers’ compensation insurance.
PEOs offer businesses several advantages, and for many business owners, the ability to focus solely on the business rather than payroll or HR issues can translate directly to improved work efficiency and increased profits. Some businesses may not have the infrastructure needed to implement perks such as employee benefits, but a PEO can solve that issue quickly while remaining affordable.
NO! At ELE, we hear this concern voiced by many clients who feel a PEO can help their businesses grow but are wary to go through the process. You will remain the owner of the business and keep the responsibilities associated with that role. However, some liabilities will transfer over to the PEO, depending on the services it provides. For example, if a PEO processes your payroll, but does not remain compliant with tax withholding laws, the PEO is liable, not you.
Generally, the PEO becomes responsible for state unemployment tax payments in states which recognize PEOs as employer entities. In states that still require unemployment taxes to be paid through the client, a PEO may still be able to manage the responsibility.
If you still have questions, simply contact us at ELE! We’re happy to answer any questions and address all concerns you may have.