This Series is supported by PEO Spectrum, the Resource for Shopping, and Comparing HR Outsourcing and Professional Employer Organization providers.

By: Thomas Farrell

This Series is aimed to educate the business community on the Professional Employer Organization (PEO) industry. This article, What is a PEO?, is the starting point. Here we provide a foundation for readers to begin understanding PEOs, and with each progressing article we will get into more detail.

Simply put, a Professional Employer Organization is a multi-service-providing vendor that allows companies to outsource the management of payroll and tax administration, employee benefit packages, workers’ comp insurance, and human resources all under one roof. The backbone of the PEO value proposition, and what makes it unique from any other vendor in the HR Outsourcing industry is the concept of coemployment.

Napeo Definition for a PEO, look here

IRS Definition for a PEO, look here

What is Coemployment?

Coemployment means the worksite employer (your business) and the employer of record (the PEO) both employ your employees, and the responsibilities of employing the workforce are shared between the two. The worksite employer continues to direct employees’ day-to-day duties and activities: hiring, training, managing, firing, etc. The employer of record is responsible for the back-office administrative duties such as processing payroll, administering & paying federal and state taxes on-time, managing employee benefits, handling workers comp and unemployment claims, etc.

But here is the best part....

Through coemploying with all of its clients, the PEO essentially forms one large conglomerate, comprised of the sum of all of their clients' employee. This allows them to take advantage of economies of scale and the law of large numbers, which decreases risk across the entire group; thereby stabalizing, and in many cases decreasing health and workers comp insurance premiums as well as state unemployment tax rates. Professional Employer Organizations provide discounts on many other cooperative purchases such as EPLI insurance, HRMS systems, employee discount programs, and much more.

The ideal situation for a salesperson attempting to sell you PEO services is to save the company so much on cooperative purchases such as health insurance and workers comp insurance that it offsets all of their administration fees. Although this doesn’t always happen, a business owner should shop around thoroughly as all PEOs are not created equally.

This diagram illustrates the relationship between employee, worksite employer (your business), and the employer of record (PEO).

Now that we have a basic understanding of what a Professional Employer Organization is, lets get into detail with the specific services they offer and how they work. PEO Services 101.

For help considering whether a PEO is right for your business, or whether you're getting the best deal with your current vendors, contact PEO Spectrum for a free vendor comparison and labor cost analysis.