Frequently Asked Questions

What is a PEO?
A Professional Employer Organization (PEO) is a company that contractually assumes and manages critical Human Resource and personnel responsibilities and employer risks for its clients while establishing and maintaining a co-employment relationship with the clients' employees.

How does a PEO arrangement work?
A co-employment arrangement is established in which both the PEO and the client company have an employment relationship with the worker. The PEO and the client company contractually allocate some and share other traditional employer responsibilities and liabilities. The PEO assumes responsibility and liability for the "business of employment" such as risk management, personnel management, Human Resource compliance, and payroll and employee tax compliance. The client company provides direction and control of the employees and manages tasks like product development and production, marketing, sales and service.

How many are employed in co-employment PEO arrangements in the country?
It is estimated that 2-3 million workers are currently co-employed in a PEO arrangement. PEOs are operating in every state as the industry has grown between 20-30% per year. Today, there are approximately 750 PEO companies who are responsible for over $28 billion in employee wages and related Human Resource matters and employee benefits.

Why would a business use a PEO?
Business owners want their time and resources focused on the "business of the business" and not on the "business of employment." Leveraging the expertise and economies-of-scale of a PEO provides small and large businesses with employee benefits, Human Resource expertise and software infrastructure that would require significant resources to obtain, administer, and maintain. Other reasons to use a PEO would be for risk avoidance and improved employee retention.

Who uses a PEO?
The company that comes to a PEO wants an expert organization to take care of the business of employment so they can focus on core tasks. Smaller companies cannot put together a big-company HR program with the services and benefits offered by a PEO. Neither can they effectively manage employment risk. Larger companies, including some that employ an HR professional, want to outsource the day-to-day administrative tasks that would otherwise require additional HR staff.

Why would a worker want to be employed by a PEO?
Workers seek financial security, quality health insurance, a safe working environment, and opportunities for retirement savings. PEOs provide Fortune 500 quality employee benefits including health insurance, 401(k) savings plans, and aggressive workplace risk management. It is very common, when workers that have been employed by a PEO change employers that they recommend using a PEO to their new employer because they are used to having superior benefits and HR support.

Who is responsible for the employee's wages and employment taxes?
PEOs assume responsibility and liability for payment of wages and compliance with all rules and regulations governing the reporting and payment of federal and state taxes on wages paid to its employees. The Internal Revenue Service recognizes the PEO as the employer for federal income and unemployment taxes, and case law affirms the principle that the PEO is responsible for payroll taxes.

Who is responsible for state unemployment taxes?
As the employer for employment tax and employee benefits, PEOs assume responsibility and liability for payment of state unemployment taxes. Most states recognize the PEO as the responsible entity.

Who is responsible for workers' compensation insurance?
Many states recognize the PEO as the employer of worksite employees for purposes of providing workers' compensation coverage. In New York, PEOs can be listed as Labor Contractors for each client worksite. With the PEO as the policyholder, each client's experience is tracked individually, thereby protecting the integrity of the experience rating system.

How can a PEO help minimize employer risk?
Employer risk can come from several areas such as on-the-job injuries, as well as employee lawsuits and fines levied for compliance violations. As co-employers, PEOs share much of this risk with the client. BUYHRO.net pro-actively manages employer risk by partnering with NetPEO to find just the right PEO for each company. That individual PEO has its dedicated Risk Manager work in concert with our Human Resources staff to provide strategies and programs that are proven to minimize these risks. The program includes safety inspections and training, establishing and communicating lawful employment policies, providing Employment Practices Liability Insurance, and providing legal support or training when necessary.