PEO services are payroll, employment and HR solutions provided by Professional Employer Organizations (PEOs). Here, we look at PEO services in detail and explain when your company might benefit from them.
1. PEO services include payroll, Employer of Record, and compliance solutions, though the precise service offering will depend on PEO firm in question.
2. Global PEO services (sometimes called international PEO services) expand on those offerings to also provide solutions targeted at international expansion.
3. PEO services can benefit organizations of different sizes and in different industries, from large enterprises to startups.
4. The benefit of PEO services derives from the time savings, cost savings, and the added compliance assurance of an expert taking on employment and tax liability.
What Does ‘PEO Services’ Mean?
A Professional Employer Organization (PEO) takes over a range of administrative and compliance tasks relating to employment. Like a contract staffing agency, it provides staff for use within a client company. It differs from a contract staffing agency, however, in engaging permanent employees on behalf of clients, as well as temporary or project staff. Services offered vary depending on the provider, but often include:
How Are PEO Services Regulated?
In the United States, PEO services are regulated at both the state and federal levels.
According to the federal tax law, the Internal Revenue Code, a PEO can be classified as a ‘third party payer’ and becomes liable for a range of employee taxes and compulsory contributions. The IRS also has a voluntary certification program for PEOs.
In addition, PEO services in the United States are often regulated on a state by state basis. For example, the New York Professional Employer Act requires all PEOs in New York state to register with the Department of Labor before commencing operations in the state. A range of obligations are applied to PEOs through this law (such as the obligation to make contributions to the Unemployment Compensation Fund).
In the United Kingdom, the UK -equivalent to PEOs, umbrella companies, are strictly regulated by HMRC (the UK tax authority).
Global PEO services are regulated differently depending on the country of operation (more on this below).
What Is the Difference Between PEO Services and Global PEO services?
A global PEO (sometimes called an ‘international PEO’) provides PEO services internationally, facilitating global hiring, rather than simply national, recruitment and employment. A global PEO is often engaged as part of an enterprises international expansion or globalization strategy.
Sometimes a global PEO has a particular regional focus, and may be known as a Europe PEO, or an Asia PEO and so on.
As well as carrying out the same services as a PEO within a country that it operates in (a national PEO), a global PEO often provides the following services:
How Does PEO Work?
When a PEO is engaged by a client company there is no standard process. Every PEO firm is different. However, the broad steps involved include:
What Are the Benefits of PEO Services?
PEO services can benefit organizations in the following ways:
Which Organizations can Benefit from PEO Services?
PEO services are used by organizations of all shapes and sizes, including:
- Large enterprises. The simplicity of one PEO services firm operating across multiple locations of the enterprise can be appealing to larger companies;
- Startups. Startups often benefit from the transparent cost structure (usually on a per employee basis), and the scalability of PEO services;
- Small and medium-sized enterprises (SMEs). SMEs often benefit from outsourcing the employer legal responsibilities and liabilities that are difficult to stay on top of with a lean staff and flat hierarchy;
- Non-profits/Non-Governmental Organizations (NGOs). As employment and tax compliance is often a contractual requirement for non-profit/NGO funding, PEO expertise can be crucial to maintaining this;
- Educational institutions and government agencies. When operating across multiple branches, or even overseas, schools, colleges and government entities can benefit from PEO guidance.
It is quite common for PEO services to be used during business expansion (whether locally or internationally) due to their inherent scalability: Usually the service can simply be scaled up depending on the number of employees that the client company needs.
In addition to popularity with organizations and businesses, PEO services are often sought out by individual contractors or freelancers who wish to ‘regularize’ their engagement and ensure full legal and tax compliance.
Frequently Asked Questions
PEOs provide employer of record services for clients. This means they become the legal employer for the workforce of the client company. As part of that role, they become responsible for employee income and payroll tax withholding.
They also become responsible for payroll processing, benefits administration and a range of other HR tasks.
A PEO platform is a human resources cloud platform used to manage employees across multiple branches of a company.
The PEO platform allows client companies to easily check on wages, benefits, and the general cost of employment.
As PEO services mean that a professional employment and staffing company takes care of any HR and payroll issues as they arise (e.g., problems with payment or tax classes), it often means a better employee experience.