A Professional Employer Organization (PEO) offers a package of services that helps employers outsource the Human Resources functions, including but not limited to payroll and tax administration, employee benefit packages, workers’ comp insurance, recruiting, placement, and training (depending on the contracted services). The success of the program depends on the concept of co-employment.

What’s the PEO deal?

The worksite company and the PEO share responsibilities to the workforce. The worksite employer – your company – runs the employees’ daily work. The PEO is the employer of record because it computes hours and generates payroll, administers and pays federal and state taxes, and completes, files, and archives employee records. It may also manage employee benefits, unemployment claims, workers’ comp, and risk management. In other words, a PEO receives the outsourced HR roles instead of your company dealing with these administrative functions in-house.

The PEO forms one big employer by co-employing with all of its clients. This creates a large labor pool that can leverage economies of scale in the negotiations for employee benefits, workers’ compensation costs, and state unemployment taxes. Any PEO worth its salt also can use the law of large numbers to provide employee discounts on purchases, wellness programs, and memberships.

Who does the deal?

PEOs were made to handle the outsourced HR functions for small businesses of 5 to 250 employees. The largest companies already enjoy some economies of scale, so the PEO effectiveness may decline with growth.

*  Some PEOs prefer office or white-collar environments in technology and professional services.
*  Some PEOs are better built for blue-collar employers in trucking, construction, and manufacturing.
*  Some PEOs are more comfortable with start-ups and international companies.

The PEO attraction lies in its ability to assume your business’s HR administration duties. Anything else, like benefits and training, is an attractive premium. So, you need to shop the PEO market to determine the options and price that means value to you.

To compare PEO companies and services, and to find the best match for your business needs, try the free PEO Selection Tool on PEOcompare.com. It will at least narrow down your search for PEO companies that specialize in your industry, state and size that offer the services you rank as most important.