Professional Employer Organization (PEO)

Definition: A company that technically "employs" the workers of several other companies and oversees all HR-related functions

By combining the employees of several companies into one large pool, professional employer organizations (also known as employee leasing companies) can offer business owners better rates on health-care and workers' compensation coverage. The net effect can be significant savings of your time and money.

Employment responsibilities are typically shared between the PEO and the business owner (you, in this case). You retain essential management control over the work performed by the employees. The PEO, meanwhile, assumes responsibility for work such as reporting wages and employment taxes. Your main responsibility is writing a check to the leasing company to cover the payroll, taxes, benefits and administrative fees. The PEO does the rest.

While many business owners confuse PEOs with temporary help businesses, the two organizations are really quite different, explains a spokesperson at the American Staffing Association (ASA). "Generally speaking, temporary help companies recruit employees and assign them to client businesses to help with short-term work overload or special projects on an as-needed basis," according to the ASA. With PEOs, on the other hand, "a client business generally turns over all its personnel functions to an outside company, which administers these operations and leases the employees back to the client."

See also "Leased Employees."

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