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What Does a Professional Employer Organization (PEO) Normally Handle?

Every year, more and more small and mid-sized organizations choose to work with a professional employer organization (PEO) to handle some or all of their essential HR functions. Doing so comes with plenty of advantages for business owners, including the ability to gain time back to focus on your core business and to provide your employees with Fortune 500-level benefits, regardless of your company’s size.

So, when you hire a PEO for HR services, what exactly do they handle for your company? In this article, we explore some common PEO services – and the difference they can make for your business.

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What is a PEO, and how does a PEO work?

A PEO (full form: professional employer organization) is an HR services provider that handles various responsibilities on your company’s behalf. A more collaborative arrangement than traditional outsourced HR, partnering with a PEO can be especially beneficial for smaller, newer, or mid-sized companies.

So how does a PEO partnership with your business work? PEOs provide services through a unique arrangement called co-employment. In this arrangement, the PEO becomes the employer of record for your business, which means you share liability with the PEO on employee-related matters. Through this arrangement, the PEO handles back-office tasks on your behalf, while you retain full control of the day-to-day operations and management of your employees.

Is an employer of record the same as a PEO?

Though a PEO becomes an employer of record for your business in a co-employment relationship, a PEO is not the same as an EOR.

PEOs and EORs offer similar HR outsourcing services. For example, you receive HR administrative support with both. The key difference is who employs the employee and who assumes risk for employment-related compliance violations.

An EOR, or employer of record, is an organization that legally employs workers in foreign countries on your behalf. Sometimes called an international PEO, an EOR assumes full liability for hiring and managing employees for businesses it works with.

On the other hand, a PEO is a co-employer with you and shares liability on employment-related matters with your organization.

What does a PEO handle?

Just as a company’s needs vary from one business to another, the services a PEO handles can vary based on the provider. Most PEOs handle payroll processing, benefits administration, and assistance with compliance. Other PEOs focus on providing technology-based solutions but may not offer HR expertise.

At G&A Partners, our focus is on providing comprehensive HR services and solutions tailored to fit the unique needs of our clients, and we back it up with best-in-class support from our team of HR experts.

Comprehensive HR services often include PEO responsibilities such as:

  • HR management and services – Help with creating policies and procedures, developing employee training and performance management programs, and maintaining HR compliance.
  • Benefits administration – Not only can a PEO offer comprehensive, Fortune 500-level benefits at affordable prices, but their benefits experts and integrated technology will also manage benefits administration and simplify enrollment.
  • HR consulting – Taking care of your employees matters. To ensure they feel valued, it’s important that your organization understands and focuses on a positive employee experience. A PEO’s HR experts provide strategic guidance to help you deliver the best for your team.
  • Payroll administration – A PEO will handle your payroll needs, from tracking time and attendance to withholding payroll-related taxes, filing federal and state payroll taxes, distributing checks and direct deposits, processing W-2s, and more.
  • HR software & technology – Streamline daily HR tasks with integrated technology that simplifies processes from onboarding to offboarding, and everything in between.

Again, it’s important to underscore that a PEO is a partner and does not take over control of your day-to-day operations or manage your employees. This is a common misunderstanding of how PEOs work, but one that is untrue. With a PEO, you will continue to run your business how you see fit.

To learn more about PEO responsibilities and how a PEO can help your business, contact our HR experts.

What is the difference between payroll and PEO services?

The main difference is that payroll administration is just one of the many comprehensive HR services a PEO typically offers and includes valuable expertise from payroll specialists who have the knowledge to navigate the most complex payroll scenarios. A payroll service, however, is solely focused on payroll processing and related tax compliance.

What is not included when working with a PEO?

A PEO typically doesn’t provide services outside traditional human resources. So, while a PEO can be instrumental in providing benefits, helping maintain compliance, and supporting employees, services you won’t find as part of a PEO’s responsibilities include acting as a staffing service, deciding who to hire, promote, or fire, enforcing policies, or conducting employee performance reviews. A PEO also does not file your corporate taxes for you.

Think of a PEO as your administrative employer – handling most of your employment-related services – while your responsibilities will continue to include (but are not limited to):

  • All business decisions
  • Operations
  • Daily supervision of employees
  • Job assignments
  • Employee reviews and assessments
  • Salaries and hourly wage rates
  • Choosing which benefits to offer employees
  • Personnel decisions, such as hiring, promoting, and terminating employees

What size company should use a PEO?

Companies of virtually any size can benefit from working with a PEO, though small to mid-sized businesses are often considered ideal candidates. In fact, of all PEO clients, roughly two-thirds have between 10 and 49 employees.

Should I hire a PEO for my small business?

If you’re a small or mid-size business that could benefit from the support of experienced HR experts, you may be a good fit for a PEO. But not all PEO companies are the same, so it’s important to find one that best meets your needs.

Our PEO Purchasing Guide can help you with this process. It includes tips on what to look for in a PEO and questions to ask as you meet with prospective PEOs. Download the guide for free here.

Why G&A

At G&A Partners, we offer access to HR experts with years of experience helping businesses develop their employees, improve their workplace cultures, implement new HR processes and procedures, and more. Schedule a consultation with one of our trusted business advisors to learn more.