What is a Professional Employer Organisation (PEO)?

Exactly What is a PEO?

Professional Employer Organizations (PEOs) enable clients to cost-effectively outsource the management of human resources, employee benefits, payroll and workers' compensation. PEO clients focus on their core competencies to maintain and grow their bottom line.

Businesses today need help managing increasingly complex employee related matters such as health benefits, workers' compensation claims, payroll, payroll tax compliance, and unemployment insurance claims. They contract with a PEO to assume these responsibilities and provide expertise in human resources management. This allows the PEO client to concentrate on the operational and revenue-producing side of its operations.

Starting your own business can be an effective way to gain control over your career. However, being your own boss also means that you have to familiarize yourself with employment laws and engage in other administrative tasks. Working with a professional employment organization (PEO) can help you balance your role as an entrepreneur with your responsibilities to be a good leader to your people.

Overview of a PEO and How It Can Help Your Business


When you enter into an agreement with a PEO, you are entering into a co-employment arrangement. The PEO's will take over many of the administrative functions generally carried out by your internal staff or human resources (HR) department. These functions include payroll processing, tracking benefits accrued and creating an employee handbook.

The PEO is responsible for making sure federal payroll tax returns are prepared and filed in a timely manner and payroll taxes are deposited timely. If your employees are subject to local, state or any other government agency withholding, you can rest assured those payments will also be made in a timely manner.

Your PEO will also be able to ensure that you adhere to local, state or federal employment laws. This is especially helpful if your company operates in multiple locations or has workers performing tasks remotely in multiple cities. As a general rule, you must abide by the laws where an employee is located regardless of where your company is headquartered.

Failing to abide by sick time, minimum wage or other standards in a given area can result in significant fines. It can also result in bad press that can harm your brand now and in the future. Ultimately, having a PEO means that you don't have to spend hours learning about labor laws when you could be out acquiring new clients.

Advantages of Using a PEO for Your Small Business

1. Save Money

One of the key advantages of using PEO payroll services or benefit services is that you can save money on administrative costs. Often, PEOs have streamlined payroll and benefit administration processes that operate more efficiently than the systems that your company has in place.

2. Get Access to Legal or Other Services

As a co-employer, the PEO handles workers' compensation claims or other legal matters on your behalf. Therefore, you will have access to a team of specialists who can mitigate claims in a timely and affordable manner. Your PEO team may have the ability to prevent employment law claims by recommending proper documentation and discipline practices.

3. Provide Better Benefits

In addition to saving money, PEOs offer access to perks or tools that you may not have the ability to provide on your own. For instance, a PEO might offer access to a 401(k) plan or offer a wider array of medical or other benefits that you could not afford to provide. In some cases, a PEO might offer benefits that you simply wouldn't have access to as a small or medium employer.

How PEOs Work

Although a PEO is listed as a co-employer, it will not actually provide any employees. In fact, a PEO HR team will not usurp the role of your existing HR team if you have one. Instead, it will simply integrate with your existing team and provide support wherever possible. The types of services it will provide will be negotiated before any co-employment agreement is signed and executed.

How the PEO works with your existing team, whether there is an internal HR team or not,  will also be determined prior to signing a client agreement. For instance, you could stipulate that your PEO helps with enforcing rules already outlined in the employee handbook. Alternatively, you could stipulate that the PEO creates the handbook and provides training as to how its rules should be enforced.

Types of PEOs

There are a number of different PEOs that you can work with that may fit your needs and budget. 

You could also choose to work with a PEO that specializes in employee leasing services. Depending on your needs, you could opt to partner with a PEO that offers formal co-employment services. In such a scenario, it would become the employer of record for your employees, which could help your company reduce its liability as well as cut down on overhead costs.

PEOs and Other Categories of Outsourcing

Working with a PEO is just one way in which you can have access to an HR department or enhance your current HR department’s services. For example, partnering with a human resources organization (HRO) ensures your company's HR needs are met.

However, unlike a PEO, you wouldn't actually be sharing employer responsibilities in an HRO relationship.

PEO Provides Integrated Services

A PEO provides integrated services to effectively manage critical human resource responsibilities and employer risks for clients. A PEO delivers these services by establishing and maintaining an employer relationship with the employees at the client's worksite and by contractually assuming certain employer rights, responsibilities, and risk.

Businesses across America have discovered the incredible value of PEOs because they provide:

  • Relief from the burden of employment administration.
  • A wide range of personnel management solutions through a team of professionals.
  • Improved employment practices, compliance and risk management to reduce liabilities.
  • Access to a comprehensive employee benefits package, allowing clients to be competitive in the labor market.
  • Assistance to improve productivity and profitability.



  • All of the same PEO services can be provided.
  • HR services can be provided.
  • There is no sharing of employer liability.
  • The employees’ wages and taxes are reported under the client’s taxpayer identification number.


  • Share employer liability.
  • Provide HR services.
  • Provide PEO services.
  • The employees’ wages and taxes are reported under the PEO’s taxpayer identification number.

PEO vs. Certified PEO

Using a CPEO can be ideal if you are worried about potential liability if employment taxes aren't submitted in a timely manner. This is because the CEPO is solely responsible for any financial or other issues that might arise due to a late or missed payment.

If you use a traditional PEO, the IRS might still decide to pursue that organization to obtain a past due balance. However, it also has the right to come after your firm for payment. The government has broad authority to take money out of bank accounts or even seize equipment to accomplish this goal.

What a PEO Doesn't Do

1. PEOs Don't Handle Day-to-Day Operations

While a PEO offers a lot to your company, there are certain things that it will not  or cannot  do for  your business. For instance, the PEO will not run the company on your behalf, which means that you retain the day-to-day duty and direction of your employees.  . It will also not be able to make decisions with regard to the employees  without consulting with you or other members of your leadership team first.

2. PEOs Won't Mean Drastic Change for Your Employees

A quality PEO will largely remain in the background as far as your employees are concerned. When done properly, the biggest impact will be the fact that the name of the PEO appears on everyone's paycheck along with your company’s name. Otherwise, it will generally be known as the entity to talk to when a worker needs a copy of a pay stub or to review their insurance options.


Become an “Employer of Choice"

Effective employee management is one of the biggest challenges owners and managers face in running and growing a business. The tasks of hiring, training, engaging, evaluating and compensating employees are at the heart of all companies, large and small. Successfully managing these tasks is essential to building and keeping an effective team of employees.

Today, largely as a result of the pandemic, employees are wanting more from their jobs and from their employers…and employers are eager to offer more…but only within defined and affordable budgets that do not undermine operating budgets and profits.

It is a truism that when employees feel valued, they have a sense of engagement with each other and with the company. This sense of being valued promotes working toward a common set of goals as a team that will drive your company to meet, and exceed, your goals.

With ProSourceSolutions as your partner, your company can meet the challenge of effectively managing your employees, driving recruitment up and employee turnover down.


As your Co-employer, ProSourceSolutions can help you become the ‘Employer of Choice’ and help you turn your company vision into a reality.

Explainer Video: What is a PEO?