The PEO relationship involves a contractual allocation and sharing of employer responsibilities between the PEO and the client. This shared employment relationship is called co-employment.
As co-employers with their client companies, PEOs contractually assume substantial employer rights, responsibilities, and risk through the establishment and maintenance of an employer relationship with the workers assigned to its clients. More specifically, a PEO establishes a contractual relationship with its clients whereby the PEO:
- Co-employs workers at client locations, and thereby assumes responsibility as an employer for specified purposes of the workers assigned to the client locations.
- Reserves a right of direction and control of the employees.
- Shares or allocates with the client employer responsibilities in a manner consistent with maintaining the client’s responsibility for its product or service.
- Pays wages and employment taxes of the employee out of its own accounts.
- Reports, collects and deposits employment taxes with state and federal authorities.
- Establishes and maintains an employment relationship with its employees that is intended to be long term and not temporary.
- Retains a right to hire, reassign and fire the employees.
Businesses today need help managing increasingly complex employee related matters, including employee relations, 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,