Professional Employer Organizations (PEOs) & Their Benefits to Employers & Employees

For several decades "Mom & Pop" businesses have struggled for survival due to competitive pressures from larger companies who are offer services and products of lower price, higher quality, in a faster and more efficient manner. The larger companies are often able to offer higher salaries and better benefits while providing a better focus to both customers and employees. Many smaller companies have sold out or failed altogether. Others struggle to find growth and profitability among intense competition.

The advent of Professional Employer Organizations (PEOs) in the 1980s aimed to even the playing field in the areas of Human Resources Management, Payroll, Benefits, Workers Compensation and other employee related areas. Professional Employer Organizations allow companies to outsource the management of the above mentioned functions and focus on their core business, operations, and generating revenue. For many years companies have outsourced functions such as legal, accounting, IT and payroll due to the lack of economy of scale for a company to employ an individual or maintain a department to perform the function. A PEO now gives the opportunity to outsource those functions along with the whole Human Resources function.

As business and the subsequent issues have become more complex, the demand and value of PEOs have increased. For example, from 1980 to 2000, labor laws and regulations grew by nearly two thirds, and owners of businesses spent up to 25% of their time on employment-related paperwork. The services PEOs offer manage employer human resource responsibilities. A PEO effectively becomes the employer of the client's employees and assumes employer rights, responsibilities, and risk. The PEO is recognized by the IRS as the employer of record for all taxes and this has been affirmed by case law. This is also generally the case with state governments. The client still retains supervision, control and scheduling duties while the PEO assumes the administrative duties.