How Does a PEO Work?

Posted April 10, 2023

Co-employment relationship is a key aspect of employee leasing companies in Florida. By sharing certain responsibilities and liabilities for HR-related tasks, the PEO can help the business focus on its core operations while meeting its HR needs. However, it’s important for both parties to carefully define and understand the terms of the co-employment relationship to avoid any potential legal issues.

employee leasing companies in Florida meeting

Responsibilities and Advantages of PEOs

Co-Employment Relationship

When a business partners with a PEO, they enter a co-employment relationship. This means that the PEO becomes the employer of record for certain HR-related purposes while the business remains the employer of record for other purposes. The PEO takes on certain responsibilities and liabilities for HR-related tasks, such as payroll processing, tax administration, workers’ compensation insurance, and employee benefits management.

Typically, the PEO takes on certain responsibilities and liabilities for HR-related tasks, such as payroll processing, tax administration, workers’ compensation insurance, and employee benefits management. This means that the PEO is responsible for ensuring compliance with relevant employment laws and regulations, as well as managing the day-to-day administrative tasks associated with HR.

Meanwhile, the business retains control over its core operations, including hiring, firing, and supervising employees. The business is responsible for setting the overall direction and strategy of the company, as well as making key decisions related to the business’s operations.

Despite the division of responsibilities, the co-employment relationship is still a partnership between the PEO and the business. Both parties must work together to ensure that the HR-related tasks are handled effectively and efficiently while meeting the business’s needs and goals.

It’s also worth noting that the co-employment relationship can have important legal implications. For example, in some cases, the PEO may be considered the employer of record for certain legal purposes, such as wage and hour laws or discrimination claims. If a legal issue arises, it may not always be clear which party is responsible.

employee leasing companies in Florida organization chart

HR Services Provided by PEOs

The PEO typically provides various HR services, such as payroll processing, tax filing, benefits administration, regulatory compliance, risk management, and employee training. PEOs can also offer HR-related technology solutions, such as HRIS (Human Resources Information System) and time and attendance tracking systems. Here’s a detailed explanation of the HR services:

Payroll Processing

One of the primary services provided by PEOs is payroll processing. This includes calculating employee wages and salaries, deducting taxes and other withholdings, and issuing paychecks or direct deposits. The PEO may also handle payroll-related tasks, such as filing tax forms and responding to employee payroll-related inquiries.

Benefits Administration

PEOs can also provide benefits administration services, such as managing employee health insurance, retirement plans, and other employee benefits. This can include enrollment, claims processing, and compliance with relevant regulations.

Regulatory Compliance

PEOs can help businesses stay compliant with relevant HR-related regulations, such as labor laws, wage and hour regulations, and workplace safety regulations. The PEO may also provide guidance on best practices for compliance and help the business navigate any potential legal issues.

Risk Management

PEOs can help businesses manage HR-related risks, such as workers’ compensation claims or employment-related lawsuits. This can include developing risk management strategies, providing training on workplace safety, and assisting with claims processing.

Employee Training and Development

PEOs can also provide employee training and development services, such as management, skills, and compliance training. This can help businesses improve employee retention, productivity, and overall performance.

HR-Related Technology Solutions

PEOs may offer HR-related technology solutions, such as HRIS (Human Resources Information System) and time and attendance tracking systems. These systems can help businesses streamline HR-related tasks and improve overall efficiency.

Overall, PEOs can provide a comprehensive range of HR-related services to businesses. By outsourcing certain HR tasks to a PEO, businesses can benefit from expertise and economies of scale that they may not have in-house while freeing up time and resources to focus on their core operations.

Benefits of Using a PEO

By partnering with a PEO, businesses can benefit from economies of scale and expertise they may not have in-house. The PEO can negotiate better rates for employee benefits, handle complex HR issues, and provide access to a wider range of HR-related services. Additionally, by taking on certain HR-related tasks, the PEO can free up the business to focus on its core operations.

How PEOs Charge for Their Services

PEOs often charge a fee based on a percentage of the total payroll or a per-employee fee. The fee can vary depending on the services provided and the business size. Some PEOs may also charge additional fees for certain services or customized solutions.

The service fee charged by a PEO can vary depending on various components, such as the size of the business, the specific services provided, and the level of customization required. Generally, the larger the business and the more services required, the lower the percentage fee charged by the PEO.

In addition to the service fee, the PEO may also charge additional fees for certain services or expenses. For example, the PEO may charge a fee for setting up a retirement plan or processing workers’ compensation claims. The PEO may also charge additional fees for certain expenses, such as insurance premiums or payroll taxes.

It’s essential for businesses to carefully review the fee structure offered by a PEO and understand exactly what services are included in the fee. Some PEOs may offer more comprehensive services than others, so it’s important to compare the offerings and costs of different PEOs before deciding.

Another important factor to take into consideration when evaluating the cost of a PEO is the potential savings that can be achieved through outsourcing HR-related tasks. By outsourcing these tasks to a PEO, businesses can reduce their HR-related expenses and improve overall efficiency.

Further, the cost of a PEO depends on several factors and can vary widely depending on the business’s specific needs. It’s important for businesses to carefully evaluate their options and choose a PEO that offers the right combination of services and cost-effectiveness.