What Exactly Is Professional Employer Organization?

What exactly is a PEO (Professional employer organization)? A PEO becomes the employer of record for tax purposes by means of a co-employment contract. All of the paper work regarding the employees is filed under the identification numbers of the PEO as opposed to being filed under the client company's identification numbers. The client company directs all the day-to-day activities of the employee while a PEO provides functions like payroll for a small charge. The charge will normally run between 3 and 15% of the total payroll as well as the employer's share of FICA, unemployment insurance withholding and Medicare.



In essence the PEO company takes over all of the human resources operations for a company. One of the benefits is that the PEO may be able to get lower costs for things like workman's compensation insurance and company employee benefits packages since with handling multiple company's HR, they can apply for a discounted rate because they are the employer of record for a much larger number of employees.



How does a PEO differ from a ASO? The main difference between a PEO and an ASO is the PEO company files all paperwork for each one of the client's employees under their EIN (employee identification number) which, in essence, makes them the legal employers. This provides the client company benefits like getting reduced cost on some company benefits and services which are required by law.



An ASO is a company that provides all or almost all of the human resources operations for a client company, but the company lists all of the employees under their personal EIN and not that of the ASO's. Providing the administrative functions for the human resources department can relieve the company of many headaches which they may not be ready to deal with, and so an ASO is an answer to providing those services with the aid of an outside contracted company.



Just what responsibilities does a PEO assume for a company? The PEO provides a wide range of management responsibilities by using their team. The PEO provides improved employment practices and risk management, which in turn reduces liabilities. They can assist a company to help escalate productivity and profitability. This provides a company a relief from the burden of employment paperwork. A PEO will give a company entry to a complete benefits package, that allows clients to be more aggressive in their section of the market.



By not having to keep up a human resources department a company can certainly increase their profitability and productivity. From a paperwork standpoint the company will have no employees of their own and thus less liability. They could still deduct the cost of labor since they're the co-employers of the employees which they pay the PEO company to supply. The PEO thus is accountable for providing all of the human resources functions of the client company.



Which is the better choice PEO or ASO, and why? There are a lot of points to consider when making a choice between the services of a PEO and an ASO. For instance you may want to maintain all your employees under your business license while having the primary part of your human resources handled by a separate company. This usually happens as a company moves from a small to a medium size company. By keeping administrative functions of your human resources operating at another location you could get by with having only a single HR person at your location as a liaison with your ASO.



Once you keep growing into a much bigger company, it may provide lots of benefits to allow your employees be filed under the licenses of a PEO company as they staff your on-site human resources. Having your employees listed under the PEO's licenses you can be relieved of a good deal of liability while maintaining a good staff and having all the challenges of maintaining all of the aspects of human resources handled by a PEO company. Each senior executive of a company will look at all of the costs and benefits of each and choose the method that will be ideal for their particular company.


Need a peo to help recruit employees for your company? PEO's also provide hr management if you can find the right company. Check out proHR.com for more information.