Generally a professional employer organization (PEO) is a single source provider of integrated services which enable business owners to outsource the management of human resources, employee benefits, payroll and workers’ compensation and other strategic services, such as, recruiting, risk/safety management, and training and development. PEOs often complete and retain Forms I-9 for client companies. The client company retains the authority to hire and fire these employees.
In general, there are two types of PEOs:
- Co-employers: These PEOs hire a client company’s employees, thus becoming the employer of record for tax purposes and insurance purposes. It then leases them back under contract to the original employer. Employees who work for the client of the PEO are considered to be the employees of both the PEO and the client company, even though the employee is performing only one set of services for both co-employers.
- Administrative services organizations: These PEOs provide outsourcing of human resources tasks but do not create a co-employment relationship. Tax and insurance filings are done by the PEO, but under the client company’s Employer Identification Number.