What is PEO (Professional Employer Organization)?


If you have payroll in the house at the end of your wit, you have more choices than hiring a payroll company accountant or outsourcing. You may also work with a PEO, or Skilled Boss.


PEOs are organizations that manage human resources (HR) activities such as payroll, workers ‘ compensation cover, employee benefits such as pensions, and maintaining compliance with all taxes, laws and regulations relating to payroll. Unlike outsourced payroll and HR firms, a PEO company is a joint partner of the small business— which can be intimidating and off-putting to some small business owners but greatly encouraging to others.

If you don’t have a PEO company working for you, no sweat; there’s another payroll solution out there for you somewhere, whether in the form of payroll software or a full service accountant. But a PEO company can be an inexpensive, stress-relieving option for employers who could use another pair of hands at one of the most costly, complicated parts of running a business.

How does PEO Businesses operate?

PEO companies vary in a few main respects from other forms of HR and payroll processing, but the biggest thing is that they are the company’s co-owners when you sign a deal with a Qualified Employer Organization — primarily for tax purposes.


When you set up your company and recruited the first employees you had to ask the federal government for an Employer Identification Number, or EIN. Like a Social Security number, an EIN registers you with the government, so you can properly file taxes.


But when you are using a PEO, it is responsible for things such as payroll taxes (federal wages, Medicare, and Social Security taxes withheld from paychecks for your employees).

Here is another term which is somewhat confusing. Because PEOs are outside businesses concerned with HR, they have to be identified as the primary employer of the workers. The sentence is not quite as scary as it sounds.


What this means is that you pass details about your workers and employment status to the PEO, which will then “leasing” your workers back to you. You keep the staff, and the PEO maintains responsibility for most workplace-related issues: employee benefits, payroll services, health insurance, workers ‘ comps, retirement plans, salary garnishments, and all other payroll, tax, and HR activities.

What can be done in a PEO business?

PEO businesses are handling everything from onboarding to handbooks for workers. They will fileW-2 reports to insure that your employees receive them on time, print pay slips when employees request them (or if your state needs them), and manage workers ‘ claims for reimbursement, among other things:

  • allocate salaries and salaries
  • Subtract payroll taxes from gross pay of employees
  • Ensure compliance with local, state, and federal laws
  • Ensure tax compliance
  • Provide unemployment insurance (COBRA)

What do PEO companies don’t do

PEO companies take on HR and payroll duties, but even though they co-own your company and operate by employee leasing, you will always be in charge of these crucial decisions:

  • choosing who to hire or fire
  • Developing and enforcing your own organizational culture
  • Work schedules, salaries and business practices
  • Keeping the work environment safe and productive

Advantages and Disadvantages of PEO (Professional Employer Organization)


Saved time and energy. You will get a few hours a week back (or more) to concentrate on increasing income because you don’t have to devote any time or employee capital to payroll and human resources.

Higher Accountability. Employers will be held responsible for failing to file reports on time, deducting the incorrect amount of taxes or refusing to settle grievances from employees or requests for compensation from workers. A PEO bears much of the conventional risks and typically takes on workplace liabilities.

Open to employees. PEOs will ease the process of providing coverage and streamlining costs— some businesses can’t afford health insurance without a PEO boost.


Potentially costly. PEOs are able to save time and energy but not always save money. These typically cost more than payroll apps, and are not always straightforward in their prices.

Less regulation. While you have more power over the corporate culture and laws than the co-owner does, you also give up the chance of absolute control. For example, the PEO may have some of the HR department activities you disagree with — but you still have to abide by them.

Options Limited. Although a PEO may require you to provide a health plan, your workers may be locked into insurance coverage for the PEO, and they may not like the choices.

In Conclusion

When you have a difficult HR situation— for example, you sometimes recruit workers around the globe for your domestic business— and spend way too much time on payroll, the right Professional Employer Organization could minimize payroll and human resources costs and stress.


Also make sure you read the fine print: PEO services charge more than most HR and payroll firms and they’re significantly more costly than payroll software, eve

Komolafe Timileyin is a passionate entrepreneur that loves to solve entrepreneurial issues. He is also a blogger and an upcoming Engineer.

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