Who is the Employer in a PEO?

Our PEO series is aimed at addressing the common questions about PEOs, and uncovering some of the lesser-known facts about working with a PEO so that you may make the best choices for your business. 

So far, we’ve learned about what a PEO company does. Here, we’ll dive into some muddy waters and decipher who is really the employer in a PEO relationship.

The “Co-Employment” Relationship

What does it really mean to enter into a “co-employment” relationship? 

When you hire a PEO company, you create a unique partnership. The PEO assumes the liabilities associated with handling your personnel administrative tasks, while offering your employees all the benefits of a large HR department. This can mean reduced liability and improved efficiency for small- and medium-sized businesses. In return, your business will be required to adopt some of the policies of the PEO company.

Employer of Record

When a business signs a “co-employment” agreement with a PEO, the two companies become co-employers of the business’ employees. In this relationship, the business owner is often referred to as the “Executive” and the PEO is known as the “Employer of Record.”

But Who is the Employer in a PEO?

Technically, both the business and the PEO company have “employer” roles. Although this may seem strange, this type of co-employment relationship allows the PEO to provide critical services to the business’ employees. To better understand who is the employer in different situations, we’ve broken down the responsibilities of each entity here:

PEO is Responsible:

• Payment of wages
• Management of workers compensation
• Various administrative tasks related to the employees
• Regulatory paperwork and compliance issues
• Guidance to managers on disciplinary measures and termination procedures
• Workers compensation insurance
• Unemployment insurance
• Employment practices liability insurance
• 401(K) plans
• Health insurance
• Section 125 Plan
• Employee benefits programs

Your Business is Responsible:

• Direction and control of operational activities assigned to employees
• Providing a safe work environment
• Payroll funds to be paid to the PEO
• Keeping track of employee hours worked and reporting those to the PEO

PEO vs. PPO

As we’ve discussed in detail, a PEO (Professional Employment Organization) becomes your business’ Employer of Record, shouldering the administrative tasks associated with personnel, while offering your employees numerous benefits that you would otherwise be unable to provide.

While sometimes confused with a PEO, a PPO (Preferred Provider Organization) is unrelated. A PPO is more closely related to an HMO (Health Maintenance Program), which is a network of healthcare providers that individuals can use for medical care. The providers in these networks have agreed to provide care to members at a certain rate.

Entering Into A Co-Employment Relationship with A PEO

Because your PEO will become your Employer of Record and will be responsible for a number of personnel management tasks, it’s critical that you find a PEO whose culture fits well into your business model. Before signing any Co-Employment Agreement, make sure you understand what you’re giving up (and what you’re getting in return).