What is a PEO (professional employer organization)?

A professional employer organization (PEO) is a service provider that handles HR services on behalf of an employer through a co-employment relationship.

Small and mid-sized business owners often turn to PEOs for support with HR management so they can focus on their core competencies.

Free download: A Guide to Professional Employer Organizations (PEO)

How do PEOs work?

When a company engages with a PEO, they enter into a co-employment arrangement.

As co-employers, the PEO and client contractually share employer responsibilities and liabilities. Both parties outline the allocation of these responsibilities in a PEO agreement (also known as a PEO client service agreement).

The client company retains ownership and control over its operations, including day-to-day management of employees and product development, marketing, sales, and service.

The PEO will typically assume responsibility for administrative tasks, employee records, employee benefits, payroll processing, and employment taxes.

Read these additional articles to learn about the difference between PEOs and other HR outsourcing options:

• PEO vs EOR: The Difference (And Why It Matters)
• What’s the Difference Between PEO vs Payroll Services?
• Independent Contractors vs. PEO Services
• What is a global PEO?

What services do PEOs offer?

Each PEO varies in the array of HR services it offers. Below are some of the typical services a PEO provides to businesses:

• HR support: PEOs can help in-house HR teams manage employee contracts, onboarding, terminations, background checks, employment verification, performance management, and more
• Payroll services: PEOs typically handle payroll processing, payroll tax withholding, and deductions on behalf of a company. Payroll also involves meticulous record keeping and reporting, delivering online pay stubs, invoices, forms, and PTO tracking
• Compliance: PEOs comprise legal experts that ensure compliance with state-specific payroll tax and employment laws to avoid penalties and disputes
• Employee benefits administration: PEOs can administer mandatory and voluntary benefits packages such as healthcare, workers’ compensation, retirement plans, unemployment insurance, and more
• Employee training: PEOs can provide training courses, workshops, and self-serve knowledge bases to help employees hone their skills and become stronger company assets
• Recruiting and talent services: Some PEOs can help companies execute their headcount planning and recruiting efforts, assisting with job descriptions, posting, and interviews

Read our guide: A Buyer’s Guide to PEO Services

How much does a PEO cost?

PEOs will charge an administrative fee for their services, often using one of two pricing structures: a fixed monthly fee per employee, usually around $1,000 per employee annually, or a percentage of your overall payroll, usually 2-11%.

Does a PEO replace my HR department?

No. Outsourcing to a PEO is not about replacing your HR team. Instead, it’s about working collaboratively with your existing team to bolster your HR functions and ensure you meet full regulatory compliance.

Your team is probably doing many tasks they don’t need to. A PEO frees your HR team to concentrate on more in-depth strategic matters that require a deep knowledge of your company and its plans.

It’s also important to note that a PEO does not manage staffing or provide employee leasing. Your HR department retains recruitment responsibilities.

Learn more about human resources outsourcing (HRO).

State-by-state guides to PEO services

Interested in using a PEO in various US states? Explore these guides to learn about some of the local regulations and requirements across the country:

• A Guide to PEO in New York
• A Guide to PEO in California
• A Guide to PEO in Missouri
• A Guide to PEO in Arizona
• A Guide to PEO in Texas
• A Guide to PEO in Illinois

What are the advantages and disadvantages of a PEO?

A PEO can be an excellent solution for outsourcing your domestic HR duties but are not designed to help you expand internationally.

Advantages of partnering with a PEO

• Relieves your businesses of many HR tasks
• Offers domestic compliance support in all supported states
• Bolsters your domestic HR management
• Cost-savings
• Peace of mind that payroll and HR are managed compliantly

Disadvantages of using a PEO

• Does not support international expansion
• Does not take full legal responsibility in case of international compliance issues
• Does not help with creating employment contracts

What is a certified PEO?

A certified professional employer organization (CPEO) is a type of PEO that has been vetted and certified by the Internal Revenue Service (IRS) in the United States.

PEOs can be accredited in the US. The IRS certifies PEOs under the CPEO program (Certification Program for Professional Employer Organizations), while ESAC (Employer Services Assurance Corporation) serves as the independent third-party accreditation provider.

PEOs in the US are usually members of NAPEO (National Association of Professional Employer Organizations).

Are PEO employees considered leased employees?

PEO employees are sometimes referred to as leased employees because the PEO technically employs them for tax and benefits purposes. However, they are different from traditional leased employees from a staffing agency.

The primary difference is that PEO employees are typically long-term, regular workers of the client company. In contrast, leased employees are usually temporary and managed entirely by the staffing agency.

Does Deel offer PEO services?

Yes. You can offload compliance risks and HR administration to Deel's PEO services, including payroll, benefits, tax compliance, training, and more. Book a demo today to speak with our experts.