Who "Owns" the Employees in a PEO Relationship?
A common question we get from companies that are considering partnering with a professional employer organization (PEO) is: Who owns the employees in a PEO? Of course, no one “owns” employees, but this question does highlight the importance of understanding how employment responsibilities are shared and who is legally responsible for your team in a PEO arrangement.
The answer lies in a model called co-employment. Under this structure, you maintain full direction and control over your day-to-day operations and team, while the PEO handles many administrative employer responsibilities—like payroll and benefits, along with expert support for HR regulatory compliance. It’s a way to share responsibilities efficiently without giving up authority over your business.
In the next section, we’ll break down how that division of responsibility works and what it means for you.
How Responsibilities are Shared in a PEO
In a PEO relationship, your employees remain fully integrated with your business. You continue to retain control over decisions around hiring, promotions, performance management, and more. Meanwhile, the PEO handles many time-consuming administrative tasks, such as payroll processing, HR management, and benefits administration on your behalf.
While most PEOs operate under a similar co-employment structure, the level of support and flexibility can vary by provider. Some offer end-to-end HR services, while others let you customize your support by selecting only the solutions you need.
Understanding the different PEO service models can help ensure the division of responsibilities aligns with your team structure, operational needs, and growth goals. The service model you choose may also influence how compliance responsibilities are shared. From payroll taxes to employee documentation, clearly defining who handles what helps reduce risk, avoid confusion, and strengthen your HR foundation.
Division of Responsibilities in a PEO Partnership
Your Company | The PEO |
Hires and manages employees | Processes payroll and files taxes |
Oversees performance and schedules | Administers benefits and insurance |
Defines compensation and work expectations | Provides guidance on workplace-related regulations |
Shapes team culture and development | Handles workers’ comp and unemployment claims |
Manages business decisions and operations | Provides access to HR technology |
For a more comprehensive breakdown of PEO services and who handles typical business-related responsibilities in a co-employment agreement, check out our article “What is Co-Employment?”
A PEO’s Role in Compliance and Legal Risk
While a PEO can’t take full legal responsibility for your compliance, it plays a valuable role in helping you meet your obligations. Through the co-employment model, the PEO acts as an advisor—offering insights, resources, and support to help ensure your HR practices align with current laws and regulations.
That includes maintaining up-to-date documentation, assisting with job classifications, and recommending policy updates when rules shift. A strong PEO partner also keeps you informed of regulatory changes, helping you take timely, informed action to stay on track.
Employee Leasing vs. PEO
Understanding how PEOs differ from employee leasing firms can help you choose the right solution for your business needs. While both involve third-party HR support, only a PEO operates under a co-employment model, allowing you to retain full control over your workforce. The chart below highlights some important distinctions:
PEO | Employee Leasing |
You hire and manage employees directly | Leasing company hired and assigns employees |
Your employees are permanent team members | Workers are often temporary or contract-based |
You retain control over schedules and performance | Control over employees may be limited |
PEO co-employs for payroll, benefits, compliance | Leasing firm is the sole legal employer |
What is the Difference Between HR and PEO?
The question may be confusing, but the distinction is important—especially for small and mid-sized businesses.
“HR”, or “Human Resources,” typically refers to your internal team or function—whether that’s a full department or a single person juggling HR along with other responsibilities. So, what is a PEO? A PEO is an external partner that provides HR outsourcing services and strategic support.
PEOs don’t replace your internal HR team (if you have one)—they enhance it. By handling time-consuming and compliance-focused tasks like payroll, benefits administration, and regulatory updates, a PEO allows your team to stay focused on people, not paperwork. And if you don’t have dedicated HR staff, a PEO gives you access to the tools and expertise of a full-service HR department—without having to build one in-house.
What is the IRS definition of an employer?
The IRS defines an employer as the entity that controls how work is performed and the party that is responsible for core employment tasks -- such as paying wages, withholding and remitting taxes, supervising workers, and providing tools or equipment needed to do the job.
These standards are especially important in a co-employment arrangement, where responsibilities are shared between your company and a professional employer organization.
To determine who is considered the “employer” for tax purposes, the IRS typically uses what’s known as the common law test:
IRS Criteria for Employer Status
- Directs and supervises the employee’s tasks
- Pays the employee and withholds appropriate taxes
- Provides the necessary tools and equipment
In most PEO arrangements, the PEO meets these requirements for tax and benefits administration, while your business retains control over day-to-day management—such as setting work expectations, evaluating performance, and shaping company culture.
To help ensure a high standard of accountability, some PEOs voluntarily become IRS-certified. Working with a Certified Professional Employer Organization (CPEO) provides additional assurance that your provider meets rigorous financial and reporting standards.
Who is the employer when using a PEO?
When you work with a PEO under a co-employment model, your business remains the worksite employer—you retain full control over day-to-day operations, employee supervision, and business decisions. Your PEO partner becomes the employer of record for specific administrative functions, such as payroll, benefits administration, and employment tax filings.
The term employer of record also applies in EOR (Employer of Record) arrangements, but the structure and purpose are different. What is the difference between PEO vs. EOR? An EOR acts as the legal employer for your international workforce, handling compliance and payroll in other countries where you may not have a legal entity. It enables global hiring without the need to establish a local business presence.
By contrast, a PEO supports U.S.-based companies that already have a legal presence and employees on the ground. It doesn’t replace your business entity or assume full employer control. Instead, it shares specific responsibilities to reduce administrative burden and risk—while keeping you in charge of your people, policies, and growth strategy.
For a full comparison of how these models differ, explore our article: "What is the Difference Between EOR and PEO?"
How Co-Employment With a PEO Benefits Your Business
Choosing a PEO doesn’t mean giving up control—it means gaining a partner. With the right co-employment arrangement, the PEO experience offers real advantages: reduced administrative workload, expert compliance guidance, and streamlined HR operations. These PEO benefits allow you to stay focused on what matters most—your team, your business, and your goals.
How G&A Can Help
A PEO partnership can reduce your HR workload and give you more time to focus on leading your business. G&A Partners provides tailored support, expert guidance, and the scalable HR infrastructure your team needs to thrive.
