GENERAL QUESTIONS
Professional employer organizations (PEOs) enable clients to cost-effectively outsource the management of human resources, employee benefits, payroll and workers’ compensation. PEO 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. They contract with a PEO to assume these responsibilities and provide expertise in human resources management. This allows the PEO client to concentrate on the operational and revenue-producing side of its operations.
A PEO provides integrated services to effectively manage critical human resource responsibilities and employer risks for clients. A PEO delivers these services by establishing and maintaining an employer relationship with the employees at the client’s worksite and by contractually assuming certain employer rights, responsibilities, and risk.
Businesses across America have discovered the incredible value of PEOs because they provide:
- Relief from the burden of employment administration.
- A wide range of personnel management solutions through a team of professionals.
- Improved employment practices, compliance and risk management to reduce liabilities.
- Access to a comprehensive employee benefits package, allowing clients to be competitive in the labor market.
- Assistance to improve productivity and profitability.
PEOs operate in all fifty of the United States. Twenty-three states provide some form of specific licensing, registration, or regulation for PEOs. Many states statutorily recognize PEOs as the employer or co-employer of worksite employees for purposes of workers’ compensation and state unemployment insurance taxes. The IRS has long 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.
It is estimated that 2-3 million Americans are currently co-employed in a PEO arrangement. PEOs are operating in every state and the industry continues to grow at an average of 20% each year. Today, it is estimated there are around 800 PEO companies who are responsible for generating more than $43 billion in gross revenues.
Once a client company contracts with a PEO, the PEO will then co-employ the client’s worksite employees. In the relationship 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 assumes responsibility and liability for the “business of employment” such as risk management, personnel management, human resource compliance, and payroll & 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 the worksite employees
Business owners want to focus their time and energy on the “business of their business” and not on the “business of employment.” As businesses grow, most business owners don’t have the necessary human resource training; payroll and accounting skills; knowledge of regulatory compliance; or backgrounds in risk management, insurance and employee benefit programs to meet the demands of being an employer.
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 usually retains those rights and responsibilities associated with “special” employers related to actual business operations. As such, 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 may also be responsible for workers’ compensation, the PEO will also focus on improving 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.
Workers seek financial security, quality health insurance, a safe working environment, and opportunities for retirement savings. Many PEOs provide Fortune 500 quality employee benefits including, health insurance and 401(k) savings plans, and aggressive workplace risk management. Job security is improved as the PEO’s economy of scale permits a business to lower employment costs. Job satisfaction and productivity increases when workers are provided quality human resource services like employee manuals, grievance procedures, and improved communications.
No. Workers are not fired by the client business and rehired by the PEO. Instead, a worker becomes an employee of two employers in a co-employment relationship. The PEO assumes employer responsibilities and liabilities for the human resource and personnel obligations of the worksite employees. This responsibility includes the employees wages and employment taxes, workers’ compensation and unemployment insurance, and employee benefits. The small business retains employer responsibilities and supervision for the production of the products or the delivery of services.
No. The reverse is generally true. 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, and retirement saving plans. Absent the PEO, a small business can neither afford nor manage these benefits.
PEOs assume responsibility and liability for payment of wages and compliance with all rules and regulations governing the reporting and payment of federal and state taxes on wages paid to its employees. PEOs have long established their role as reporting income and handling withholding, FICA and FUTA. In 2002, the IRS issued guidance confirming the ability of PEOs to offer qualified retirement benefits.
As the employer for employment tax and employee benefits, PEOs assume responsibility and liability for payment of state unemployment taxes, and Nevada recognizes the PEO as the responsible entity.
Both the client and the PEO have compliance obligations. However, PEOs provide worksite employees with coverage under the entire spectrum of employment laws and regulations as it applies to their specific worksite, including federal, state, and local discrimination laws, Title VII of the 1964 Civil Rights Act, Age Discrimination in Employment Act, ADA, FMLA, HIPAA, Equal Pay Act, and COBRA.
Questions on whether or not these laws apply to the worksite should be directed to the AdvanStaff HR Department.
Nevada requires each subscriber company to carry its own workers’ compensation policy. However, our in-house specialists and powerful systems efficiently manage the entire process from start to finish, thus freeing the time and resources up for the manager and business owner to focus on the core business.
No. PEOs work equally well in union and non-union worksites. The National Labor Relations Board (NLRB) recognizes that, in co-employment relationships, worksite employees are appropriately included in the client employer’s collective bargaining unit. Where a collective bargaining agreement exists, PEOs fully abide by the agreement’s terms. PEOs endorse the rights of employees to organize, or not organize, according to standards of the NLRB.
Like other employers, a PEO may sponsor employee benefit plans for its worksite employees. Such benefits may be mandated by law, such as workers’ compensation and unemployment benefits, or voluntary, but desirable in attracting and retaining quality employees, such as health, life, dental and disability insurance. PEOs are consumers of insurance and procure these benefits from licensed insurance agents and authorized insurers.