Frequently Asked Questions (FAQ)
What is ASO?
ASO services can best be described as a truly outsourced Payroll and HR department for your business that utilizes your company’s tax id numbers unlike with the PEO services which utilizes the PEO’s tax Id numbers. However, IAS can still manage it all for you, Human Resource Administration, Payroll Services, Forms, Risk and Safety, Compliance, Benefit Auditing and Payment Remittance, Workers’ Compensation Reporting, Payment and audits.
What is PEO?
A Professional Employer Organization (PEO) helps client companies cost effectively outsource the management of payroll, workers’ compensation, human resources and employee benefits.
PEOs help 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.
Engaging a PEO enables companies to share these responsibilities and provide expertise in human resources management. This allows PEO clients to focus on the operational and revenue-producing side of their business. PEO companies provide an integrated service to effectively manage human resource responsibilities and employer risks for their clients. A PEO delivers these services by establishing and maintaining an employer relationship with the employees at the client site.
Who uses a PEO?
Any business can find value in a PEO relationship. An average client of a NAPEO member company is a business with 19 worksite employees. Increasingly, larger businesses also are finding value in a PEO arrangement, because PEOs offer robust Web-based HR technologies and expertise in HR management.
PEOs can partner with companies that have 500 or more employees and work in conjunction with their existing human resources department. PEO clients include many different types of businesses ranging from accounting firms to high-tech companies and small manufacturers. Many different types of professionals, including doctors, retailers, mechanics, engineers and plumbers, also benefit from PEO services.
How does a PEO arrangement work?
Once a client company contracts with a PEO, the PEO will then co-employ the client’s worksite employees. In the arrangement among a PEO, a worksite employee and a client company, there exists a co-employment relationship in which both the PEO and client company have an employment relationship with the worker.
The PEO and client company share and allocate responsibilities and liabilities. The PEO assumes much of the responsibility and liability for the business of employment, such as risk management, human resource management, and payroll and employee tax compliance. The client company retains responsibility for and manages product development and production, business operations, marketing, sales, and service. The PEO and the client will share certain responsibilities for employment law compliance. As a co-employer, the PEO will often provide a complete human resource and benefit package for worksite employees.
Are PEOS recognized as employers at the state and federal levels?
Yes. PEOs operate in all 50 states. Many states provide some form of specific licensing, registration, or regulation for PEOs. These states statutorily recognize PEOs as the employer or co-employer of worksite employees for many purposes, including workers’ compensation and state unemployment insurance taxes.
The IRS has accepted the right of a PEO to withhold and remit federal income and unemployment taxes for worksite employees. The IRS has promulgated specific guidance confirming the authority of PEOs to provide retirement benefits to workers.
Why would a business use a PEO?
Do the business owners lose control of their businesses?
No. The client retains ownership of the company and control over its operations. As co-employers, the PEO and client will contractually share or allocate employer responsibilities and liabilities. The PEO will generally only assume responsibilities and liabilities associated with a “general” employer for purposes of administration, payroll, taxes and benefits. The client will continue to have responsibility for worksite safety and compliance. The PEO will be responsible for payroll and employment taxes, will maintain employee records and reserves a right to hire and fire. Because the PEO also may be responsible for workers’ compensation, many PEOs also focus on and improve safety and compliance.
In general terms, the PEO will focus on employment-related issues and the client will be responsible for the actual business operations.
What is the difference between PEOs and employee leasing?
PEOs do not supply labor to worksites. PEOs supply services and benefits to a small business client and its existing workforce. PEOs enter into a co-employment arrangement typically involving all of the client’s existing worksite employees in a long-term relationship, and sponsor benefit plans for the workers and provide human resources services to the worksite employer. In most cases, the PEO provides access to health insurance, retirement savings plans, and other critical employee benefits for the worksite employees of a small business client. If a PEO relationship is terminated, the workers’ co-employment arrangement with the PEO ceases, but they will continue as employees of the client.
By comparison, a leasing or staffing service supplies new workers, usually on a temporary or project-specific basis. These leased employees return to the staffing service for reassignment after completion of their work with the client company. Some define employee leasing as temporary employment arrangement where one or more workers selected by the leasing or staffing entity are assigned to a customer frequently for a fixed period of time or for a specific project. Upon termination of the staffing or leasing company arrangement, the worker has no continuing employment relationship with the client.
Historically, leasing terminology was used to describe what has evolved into PEO relationships. Some older state statutes governing PEOs still use the leasing terminology, contributing to the confusion about PEOs.
What is the difference between temporary staffing services and a PEO?
How many Americans are employed in a co-employment PEO arrangement?
It is estimated that 2-3 million Americans are currently co-employed in a PEO arrangement. The average PEO has grown more than 20 percent per year for each of the last six years, according to a survey of NAPEO members. About 700 PEOs that offer a wide array of employment services and benefits are operating today in 50 states.
The PEO industry generates approximately $68 billion in gross revenues annually. PEOs have an 88 percent client retention rate due to strong client satisfaction. NAPEO member companies are estimated to account for more than 91 percent of the industry’s gross revenues.
How do PEOs help their clients control costs and grow their bottom line?
The PEO’s economy of scale enables each client company to lower employment costs and increase the business’s bottom line. The client can maintain a simple in-house HR infrastructure or none at all by relying on the PEO. The client also can reduce hiring overhead.
The professionals at the PEO can provide critical assistance with employer compliance, which helps protect the client against liability. In many cases, the client can pay a small up-front cost for a significant technology and service infrastructure or platform provided by the PEO. In addition, the PEO provides time savings by handling routine and redundant tasks for its clients. This enables the business owner to focus on the company’s core competency and grow its bottom line.
How do employees benefit from a PEO arrangement?
Employees seek financial security, quality health insurance, a safe working environment and opportunities for retirement savings. When a company works with a PEO, job security is improved as the PEO implements efficiencies to lower employment costs. Job satisfaction and productivity increase when employees are provided with professional human resource services, training, employee manuals, safety services and improved communications. And in many cases, a co-employment relationship provides employees with an expanded employee benefits package, to include a 401(k), life insurance, disability insurance, discount plans, a flexible spending plan and more.
Do workers receive comprehensive benefits?
Frequently, a PEO arrangement is the only opportunity for a worker of many small businesses to receive Fortune 500 quality employee benefits like health insurance, dental and vision care, life insurance, retirement saving plans, job counseling, adoption assistance, and educational benefits. Absent the PEO, a small business can neither afford nor manage these benefits.
Who is responsible for the employees' wages and employment taxes?
Who is responsible for state unemployment taxes?
Who is responsible for employment laws and regulations?
As employers, both the client and the PEO have compliance obligations. However, PEOs provide worksite employees with coverage under many employment laws and regulations, including federal, state, and local discrimination laws, Title VII of the 1964 Civil Rights Act, Age Discrimination in Employment Act, ADA, HIPAA, Equal Pay Act, and COBRA.
In many cases, these laws would not apply to workers at small businesses without the PEO relationship, since many statutes have exemptions based upon the number of workers in a work force. Once included in the PEO’s workforce, the workers are protected by these laws.
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