What is a PEO?
Definition of a Professional Employer Organization
A Professional Employer Organization (PEO) is defined as an organization that provides an integrated and cost effective approach to the management and administration of the human resources and employer risk of its clients, by contractually assuming substantial employer rights, responsibilities, and risk and, through the establishment and maintenance of an employer relationship with the workers assigned to its clients.
More specifically, a PEO establishes a contractual relationship with its clients whereby the PEO:
- assigns workers to client locations, and thereby assumes responsibility as an employer for specified purposes of the workers assigned to the client locations
- reserves (with the client) a right of direction and control of the employees
- Employer responsibilities are shared with or allocated to the client, consistent with the client's responsibility for its product or service
- pays wages and employment taxes of the employee out of its own accounts
- reports, collects, and deposits employment taxes with state and federal authorities
- establishes and maintains an employment relationship with its employees which is intended to be long term and not temporary
- retains (with the client) a right to hire, reassign, and fire the employees
Businesses today need help managing increasingly complex employee related matters such as personnel management, health benefits, workers' compensation claims, payroll, payroll tax compliance, and unemployment insurance claims. Businesses contract with a PEO to assume these responsibilities, which then allows the client to concentrate on the operational and revenue-producing side of its operations.
A PEO provides integrated services which more cost effectively manage critical human resource responsibilities and employer risks for clients. PEOs deliver these services by establishing and maintaining an employer relationship with the workers assigned to its client and by contractually assuming certain employer rights, responsibilities, and risk.
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