Professional Employer Organization

An outsourcing firm that typically offers payroll services, tax withholding, HR, and benefits. Employees contract directly with the company (e.g. the offer letter origin is the company not the PEO) and then the PEO enrolls them in payroll and other services. PEOs charge two to seven percent of payroll.

See also:

  • Peos Charge Two to Seven Percent of Payroll

    PEOs charge between 2-7% of the dollar volume of the payroll for their services (more for GEOs) generating revenue between $1,200 per employee per year up to $4,000 (source: JP Morgan).

  • ASO

    An administrative services organization (ASO) is an outsourcing provider for HR related administrative work. This is similar to a PEO (professional employer organization), but without co-employment. It is significantly less expensive than a PEO because the ASO does not carry employment-related liability.

  • PEO Was Made up to Dress up the Image of Employee-Leasing

    Employee leasing was started in the 1960s and is a predecessor to professional employer organizations (PEO). It was used to exploit loopholes in the US tax system. The idea evolved from staffing agencies to include HR and worker safety services until someone coined the phrase PEO to sound more like HMO and clean up the image of employee leasing.

  • Peos Offer Better Healthcare for Small Businesses

    One of the benefits of a PEO for small businesses in the U.S. is access to better healthcare plans. Since the PEO is an employer of record, they have many employees which improves their buying power when negotiating plans. A small business on their own does not have many employees to negotiate better rates.

  • The US Is the Only Country That Recognizes Co-Employment

    Professional employer organizations rely on co-employment to share responsibilities with their customers. A company enters into an agreement with a PEO where the PEO is responsible for statutory requirements (remitting payroll taxes and compliance with labor laws) and the company acts as the workplace employer that hires, terminates, and supervises. (Interestingly, PEOs also have the power to hire/fire, but it is seldom, if ever, used). Each state recognizes co-employment (to some degree).

  • Peos Taking Care of Everything Is a Myth

    PEO’s often position themselves in the market as a service where you can entrust them to do everything for you. However, that is not the case.

  • SUTA Dumping

    SUTA dumping is fraudulent arbitrage of State Unemployment Tax where fraud-y PEOs put employees from high insurance rate companies into a new entity with a low insurance rate and pocketed the difference. This was made illegal by the SUTA Dumping Protection Act of 2004 which is why you typically get asked questions when signing up for payroll whether or not you are trying to do this.

  • PEO Has a Market Size of $56 Billion in the US

    The overall opportunity for PEOs is $56B (source: JP Morgan) which represents 21.5 million SMBs with 10-99 employees. However, in the US, workers are increasingly working for larger enterprise companies and those enterprises have the resources for in-house employment.

  • Peos Are an Underwriting Business

    Since PEOs are the employer of record, they shoulder the insurance risk for health care, workers compensation, and unemployment. They must be mindful of this exposure as they grow and control for it with risk management.

  • Peos Kick You off If One Employee Overutilizes Insurance

    A business can get kicked off of their PEO or unable to use a PEO if even a single employee “overutilizes” insurance benefits. When it comes to health insurance this can mean one person has a severe illness or medical condition.

  • Differences Between PEO and EOR

    An EOR is much more expensive because they take on all of the liability and compliance on behalf of the company. Company’s use an EOR to hire employees globally where they do not have a local legal entity.