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What Is a PEO?

Posted by Ray Gonder


Sep 25, 2015 9:00:00 AM

What_Is_a_PEOA professional employer organization, or PEO, is a company that hires a client’s employees, and thus, becomes their employer of record for insurance and tax purposes. The practice of partnering up with a PEO is known as co-employment or joint employment. As the employer of record, the PEO is then responsible for handling the employee management tasks, such as training and development, compliance, risk and safety management, workers’ compensation, payroll, and employee benefits.

Who Uses These Services?

Many different types of clients in varying industries can benefit from the services offered by a professional employer organization. High-tech companies, accounting firms, small manufacturers, and even professionals like engineers, plumbers, and retailers avail themselves of these services. Any business that has employees and that doesn’t have the time, resources, or manpower to manage its staff can benefit. Small and mid-sized organizations as well as foreign companies can get the most out of a PEO.

Why Use a PEO?

Using the services of a professional employer organization helps business owners reduce costs, reduce risks, and stay focused on core competencies in order to grow their bottom line. It relieves them from the burden of time-consuming and tedious employment administration.

Additionally, many business owners use professional employer organizations because, as their businesses grows, they simply do not have the necessary skills, knowledge, or background to meet the demands of being an employer. It provides these small-group markets with access to many employment amenities and benefits that they wouldn’t be able to access otherwise.

Here are five of the benefits they receive:


PEOs are incredibly valuable due to their expertise in human resources, payroll, risk management, and compliance—many areas that the typical business owner is not well-versed in.

When you don’t have the required knowledge, experience, or skills needed to effectively manage your employees, you put your company at risk of error or non-compliance. Being inexperienced in these areas will also cause you to waste a lot of time learning the ropes—time that could be better spent on revenue-generating and operational activities.


New laws and regulations are constantly appearing. There are thousands of laws that business owners must be aware of and compliant with in order to avoid lawsuits, fines, penalties, and even jail time. It can be time consuming and stressful to keep up with health and safety regulations, employment laws, payroll and tax legislature and other relevant laws. PEOs can help their clients navigate through the world of compliance and ensure that they aren’t unintentionally breaking any rules that will get them in trouble.

Cost Savings

PEOs can help their clients control costs and grow their bottom line. They won’t have to invest in in-house HR, payroll, and compliance infrastructure; they can reduce their hiring overhead; they can avoid costly fines and penalties through compliance; they can avoid paying for expensive technology; and they can boost productivity by outsourcing their non-critical tasks, so they can focus on their core business.


Business owners who manage their employees with pen and paper or spreadsheets or even out-of-date software are doing themselves a disservice. There’s no reason to perform these tasks manually in today’s digital world. But the cost of state-of-the-art technologies, equipment, and IT infrastructure can make it impossible for them to automate their systems. With a PEO, business owners get to benefit from the best technologies, from payroll software to a fully integrated HR system.

Comprehensive Employee Benefits Packages

Professional employer organizations also enable businesses to offer more comprehensive benefits packages. With a PEO, companies have increased buying power—they can offer their employees better benefits packages at a lower price than they could afford on their own. This is especially valuable to small and mid-sized businesses. It allows them to become more competitive in the job market by helping them make better offers to top talent in order to get the best employees.

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Topics: PEO

Ray Gonder

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