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What is a PEO?
Home » Human Resources » PEO/Employee Leasing » What is a PEO?PEO is an acronym for Professional Employer Organization. A professional employer organization is a business that specializes in the creation and maintenance of a three-way relationship between the PEO, a client business, and the employees of that client. If a business chooses to use a PEO, the PEO begins the process with a review of the administrative and human resource documents of the business – a process that can take anywhere from a couple of weeks to more than a month. The PEO and the business then enter into a contract that divides traditional employer responsibilities among the business and the PEO. Contracts vary in each specific case, but in most situations the PEO assumes administrative responsibilities, such as payroll, human resources and employment taxes. The client business, on the other hand, focuses on traditional growth areas for the business, such as sales, service and product development.
Although the client business still makes all of the decisions regarding the direction of its company, the PEO receives a monthly administrative fee from the client business and cuts employee checks, provides employee benefits packages and, in many cases, may appear to employees to be the actual “boss” within the company. Despite the fact that the client business continues to make decisions regarding the direction of the company, that appearance is at least technically accurate, because the client business and its employees thereafter reside on the payroll of the PEO – a process known as employee leasing. Employee leasing is sometimes distinguished from standard PEO arrangements because it may involve only a short-term agreement and a limited number of the employees of the client business. Additionally, some employee leasing firms do not characterize themselves as a PEO’s. In general, however, the terms are interchangeable.
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