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).
Co-employment enables PEOs to file payroll taxes using their FEIN and state ID numbers (except client reporting states). They also can put their customers' employees on their master health care plans and workers' compensation insurance.
See also:
- PEOs are an underwriting business and need to manage insurance premiums and pass-through costs.
- PEOs taking care of everything is a myth
- Back office