PEO stands for Professional Employer Organization. A PEO is a company that partners with businesses to help them manage employer-related administrative tasks such as payroll, certain human resources functions and compliance.
PEOs form a legal arrangement with their partnering businesses called co-employment. Within the arrangement, employees are listed under the PEO, and the PEO acts as their employer under certain circumstances specified by the primary employer. The primary employer retains control of the employees along with the hiring and firing decisions, but the PEO requires companies to adopt their policies and procedures.
Not to be confused with outsourced Human Resources, a PEO has the legal power that a contract HR team does not. A PEO can act on behalf of the primary employer in employee disputes, unemployment claims and workers’ comp claims.
In contrast to PEOs, HR and payroll software providers do not serve as co-employers. Instead, HR and payroll providers process payroll, file taxes and help manage HR tasks on their client’s behalf. One common complaint of the PEO industry is that the technology it offers is outdated and not user friendly.
For a closer look at the pros and cons of using a PEO, check out this article.