What is a PEO (Professional Employer Organization)?

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A PEO, or professional employer organization, is a US company that enters a co-employment arrangement with a client business and handles employer tasks such as payroll, benefits administration and HR compliance. The client still directs daily work. A PEO differs from a staffing agency and from an employer of record.

How a PEO differs

With a PEO, the client keeps its own workforce and runs the work, while the PEO takes on administrative employer functions under a contract. A staffing agency places its own workers at the client. An employer of record is typically the legal employer in a place where the client has no entity. Responsibility for tax and legal duties depends on the contract and the law, so confirm it in writing.

Questions to ask

Ask which duties the PEO handles, who is liable for payroll taxes, which benefits plans it offers, and how termination and disputes are handled. The IRS publishes guidance on employment tax responsibilities for businesses that use payroll providers.

Example

A small company with employees in several states signs with a PEO to run payroll and benefits. The company still hires, manages and sets the work of its staff.

Sources

This is general information, not legal, tax or immigration advice. Rules change and your situation may differ. Consult a licensed attorney or qualified adviser.