What is a Professional Employer Organization?

PEO's Handle Human Resources, Payroll, Health Insurance for Business

May 15, 2009

PEO companies provide services like payroll, employee health insurance benefits, staff training, and other business needs so owners can focus on the work they love.

For people doing the work they love, hiring a PEO or professional employer organization can make the difference between success and failure as a small business. That's because PEO's manage tasks like payroll, health insurance, employee training, and human resources concerns that the average small business owner knows the importance of – but doesn't necessarily have time or expertise to handle.

What is a PEO?

The acronym PEO is short for "professional employer organization" - a company that provides human resources, payroll services, employee health benefits and training to small businesses. PEO services take the weight off of business owners and managers by allowing them to do what they do best – provide the goods and services offered by their business – while someone else takes care of the business administration.

PEO's are sometimes called "employee leasing" companies because most PEO organizations operate under a co-employment arrangement that makes the PEO the official employer of the small business's staff for legal purposes. According to Entrepreneur.com, the PEO becomes liable and responsible for human resources and administrative purposes, while the smaller company that outsourced work to the PEO retains control of daily operations of the business.

Most PEO organizations make money by charging businesses a percentage of payroll cost and a small percentage over the low group insurance rates they receive – still a lower price tag than most outsourcing companies would be able to find on their own.

What Kinds of Services Does a Professional Employer Organization or PEO Offer?

PEO organizations offer everything from administrative help to payroll aid and legal expertise. Some of the services offered by most professional employer organizations include:

Who Uses PEO Services?

Most businesses could benefit from outsourcing some of their business needs to a PEO, say the experts at PEO.com. The largest market for PEO organizations comes from small businesses whose administrative and staffing needs exceed their own ability to manage them easily. Given the choice, most small businesses would be better off delegating administration and human resources tasks to a PEO rather than drowning in the legal and management details.

While some owners imagine that they might lose control over the business by hiring a PEO, says PEO.com, the opposite is true. Most managers feel they have more control once a PEO is taking care of their employees and they are left to focus on the core of their business.

Reference

The copyright of the article What is a Professional Employer Organization? in Human Resources Management is owned by Victoria Anisman-Reiner. Permission to republish What is a Professional Employer Organization? in print or online must be granted by the author in writing.