What is a professional employment organization (PEO)?

What is a professional employment organization (PEO)?
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A Professional Employment Organization (PEO) is a company that offers comprehensive HR and administrative services to other companies in compliance with employment laws. A PEO operates under a co-employment relationship with its client companies.

What does a PEO do?

Companies utilize PEOs for outsourcing HR activities such as payroll processing and tax administration. However, there are additional HR and admin tasks you can outsource to a PEO:

  • Benefits administration: A PEO can offer a range of employee and contractor benefits such as health insurance, retirement plans, and other employee perks.
  • Recruitment and hiring: A PEO can assist with recruitment and hiring processes, including job postings, screening candidates, and conducting interviews.
  • Onboarding and offboarding: From designing and conducting efficient onboarding, and handling paperwork to conducting exit interviews, a PEO handles onboarding and offboarding of employees seamlessly.
  • HR compliance: A PEO can help businesses stay compliant with labor laws and regulations by providing guidance on HR-related legal matters and keeping up with changes to employment laws.
  • Training and development: A PEO can provide training and development programs for employees to enhance their skills and improve job performance.

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How does a PEO co-employment relationship work?

When companies partner with a PEO service provider, they enter into a co-employment relationship. 

It is an arrangement between a PEO and a client company where both parties share employer responsibilities for the client company's employees. They establish the terms of the co-employment relationship through a co-employment agreement. This agreement outlines the rights and responsibilities of both parties, including the terms of the PEO's employment relationship with the employees, and the services the PEO will provide to the client company. 

The client company retains ownership and control over its operations, including employee management, sales, marketing, product development, and so on. Typically, the PEO will be in charge of HR and administrative tasks like maintaining employee records, administering employee benefits, payroll processing, and handling employment taxes.

Under the co-employment relationship, the PEO assumes a significant level of liability for employment-related issues, such as compliance with labor laws, workplace safety, and employment discrimination. This allows the client company to focus on its core business operations, while the PEO handles many administrative tasks associated with employment.

How much does a PEO cost?

The cost of a Professional Employer Organization (PEO) can vary depending on a variety of factors, including the size of the business, the services needed, and the location of the PEO. Typically, PEO fees are charged as a percentage of the total payroll, ranging from 2% to 12% or more, depending on the level of services provided.

In addition to the percentage of payroll fees, PEOs may also charge additional fees for certain services, such as recruiting or training, as well as fees for setup, termination, or other administrative costs.

Is a PEO the same as an EOR?

No, a Professional Employer Organization (PEO) and an Employer of Record (EOR) aren't the same. So what is a PEO?

PEOs are co-employers who work for you and provide HR and administrative services such as payroll, benefits administration, compliance assistance and more. 

On the other hand, an Employer of Record (EOR) is a third-party organization that helps businesses of all sizes to hire compliantly, onboard, pay, and manage their globally-distributed workforce without setting up entities or subsidiaries in every country they wish to hire.  

Employer of Record services include:

Advantages and disadvantages of a PEO

Using a PEO has both advantages and disadvantages. Let's take a look at some of them.

Advantages of using a PEO-

  • Cost-effective and saves time
  • Reduced HR workload
  • Enhanced employee benefits
  • Gives businesses access to HR services
  • Payroll administration

Disadvantages of using a PEO-

  • Loss of control over HR processes 
  • Causes an impact on the company’s culture and engagement
  • Diminished value of internal HR department.
  • Lack of control and security over employee paperwork.
  • Compliance isn't guaranteed

How can Skuad help you with your PEO requirements?

Mitigate the risks of global hiring, onboarding, payroll, and compliance by partnering with Skuad as your company's Global Professional Employer Organization (PEO). With our 160+ local entities, employ and pay talent anywhere in the world compliantly. Also, Skuad as your global PEO human resources partner helps you manage payroll and provide benefits across borders compliantly while you own your employees’ IP, and handle day-to-day communication and management.

Get in touch with our experts to know more!

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