What is a professional employer organization, or PEO?

Ever wanted to outsource the hard parts of human resources? A professional employer organization (PEO) may be the answer. Before you go looking for help, though, take some time to learn more about what services a PEO does (and does not) provide.

What is a PEO?

PEOs handle things like outsourced payroll, benefits, taxes, and certain types of compliance documentation for businesses. Think of a PEO like an outsourced HR department that helps your employees get paid, request time off, and manage tax forms, among other things. When you work with a PEO, you enter into a co-employment agreement, so both you and the PEO employ your worker at the same time.

For small- and medium-sized businesses, complex tasks such as payroll, benefits management, and taxes can take up a ton of time. As teams expand, leadership teams don’t have time to keep up with the work themselves. To remedy that, they sometimes outsource difficult HR and payroll work to a PEO.

Some PEOs are also employers of record, or EORs, but not all of them. When you work with a PEO to handle payroll and benefits, your employees still work for you on paper through a co-employment agreement. With an EOR, your employees technically work for the EOR for reasons of legal compliance — although they still work for you in practice, the same as any of your other employees. Learn more about the difference between a PEO and an EOR in our post on the subject.

Employer of Record & PEO —

10 min

Does your business need an EOR or a PEO?

Though some in the HR industry use the terms interchangeably, PEOs and EORs have a few important distinctions. This article explains the differences between an EOR and a PEO.

What do PEOs do for businesses?

Larger organizations may have the financial resources to manage the difficult details of HR on their own, but smaller businesses do not have the same luxury. By outsourcing to a PEO, companies that struggle with the day-to-day work of employee administration can provide a better experience for their teams in a variety of ways.

Payroll

Nothing can doom a promising company like unhappy employees who don’t get paid on time. PEOs provide reliable payroll services so company leaders don’t have to stress about the details of deposits, bank accounts, and paperwork. Most PEOs provide self-service options to employees, so workers can update their information and change their preferences on their own, greatly reducing friction and exposure to risk for the business.

Benefits

Different companies offer different benefits, but most benefits fall into the same basic categories of insurance, time off, reimbursements, etc. PEOs can handle even the most unusual benefits, so don’t be afraid to reach out if you aren’t sure whether your PEO can help.

In addition, PEOs usually have access to broader benefits networks than employers can find on their own. This can help companies access health insurance with more coverage and better rates, plus 401(k) and other retirement plans with lower fees and more investment options for employees.

Taxes

With remote work becoming more common, more companies now have employees in multiple parts of the world. You need a full EOR to hire international workers, but if you have employees within the U.S. who live in different states, a PEO can ensure you don’t run into tax troubles. By outsourcing, you no longer need to worry about proper withholding rates for federal and state taxes, nor do you need to worry about making your payroll tax payments on time: Your PEO handles all that on your behalf.

Compliance

Tax compliance makes up a large part of a PEO’s responsibility, but taxes are not the only form of compliance small businesses must follow. Not only do you have to file the proper documentation to classify your workers as employees or contractors, but you must also make sure you comply with local regulations relating to workers’ compensation, social responsibility programs such as unemployment, and other country-specific rules. Misclassifying workers carries serious consequences, so if you aren’t sure whether you’re following the law, you may want to get some outside help. PEOs don’t usually offer auditing services to double-check employee classification, but they do ensure you don’t get into trouble for filing the paperwork incorrectly.

What advantages do PEOs offer businesses?

Small- and medium-sized businesses may save money and hassle by leaning on a PEO to do the heavy HR lifting.

As mentioned earlier, companies working with PEOs usually get access to a wider variety of insurance and financial products than the same companies could on their own. Because PEOs work with several businesses at once, they can spread risk across a larger pool of employees, making them more appealing to underwriters than small businesses with only a few dozen employees.

Companies may also find it easier to scale more quickly when working with a PEO as opposed to keeping all HR tasks in house. The more people you hire, the more time you must take to onboard workers and the more internal resources you must dedicate to providing a good experience for your teams. With a PEO, you can depend on a standardized, optimized experience that ensures all your workers are legally compliant and happily employed.

In a nutshell: PEOs provide solutions for important concerns like payroll, benefits, and compliance to help employees and their leaders to focus less on fine print and more on working together.

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Should you consider an employer of record (EOR) instead?

Businesses looking to scale without opening new entities need to use an EOR instead of a PEO. This option is often faster, safer, and more cost-effective than opening a legal entity in each new country where you want to employ local talent. Without a local entity, you cannot work with a PEO — only an employer of record — as the co-employment relationship with a PEO would require a local entity on your company's part.

We have developed a dedicated guide to answer a critical question for anyone investigating the most effective method to scale global HR operations:

Does your business need an EOR or a PEO?

This guide explains the important differences between a PEO and an EOR and explores the scenarios best suited to each option. Though some use the terms interchangeably, PEOs and EORs have a few important distinctions. PEOs handle HR functions for businesses with local entities through a co-employment agreement, while EORs legally employ workers on behalf of their client companies. If you do not own an entity in the country where you want to employ someone, you need an employer of record, not just a PEO.

If you are looking to hire someone in another country and do not have a local entity there, be sure to read more about when should you use an employer of record and how to choose the one that's right for your business.

Remote can provide your company with EOR services all around the world. Whether you want to hire a CEO in Salt Lake City, an engineer in Paris, or a designer in Johannesburg, we take care of the hard parts so you employ the top talent you need in full compliance with local labor laws. Check out our Country Explorer to see our coverage all around the globe.

Remote provides a first-class experience to your employees no matter where they live. To learn more about our global employment solutions, contact us today. If you're ready to start hiring right away, sign up now and start onboarding your global team members in minutes.

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