This can all be confusing to compare as many different companies offering different services can all fall under the umbrella of a PEO. There is no set definition of a PEO, though many of them operate in the same way. Though employee and staff leasing companies fall under the PEO umbrella, most classic PEOs do not lease their employees to you. Instead, they co-employ your employees (which can sometimes be referred to as employee leasing.)
Professional Employer Organization (PEO)
With a classic PEO, the PEO enters a co-employment agreement with their client company bound by a contract called a Client Services Agreement (CSA.) All payroll taxes, workers compensation insurance, and benefits are under the PEO’s Federal Tax Identification Number (FEIN) instead of that of the client company. The PEO will pay wages and employment taxes from their accounts, plus they will report and collect those employment taxes. As an employer of record, they take on the responsibilities of workplace safety (and may implement safety programs,) plus they arrange workers compensation insurance. They also provide human resources services and help with state and federal law compliance.
Human Resources Outsourcing and Administrative Services Organizations
Human Resources Outsourcing Organization (HRO) and Administrative Services Organization (ASO) are usually very similar. They provide many of the services of a PEO, but without employing your employees. Your company remains the only employer and is taxed under its own FEIN. It’s simply outsourcing the duties. HROs and ASOs may provide payroll processing as well as 401(k) retirement plans, employee benefit packages, and workers compensation coverage and claims.
PEOs with Carve-Outs
A PEO with carve-outs is customizable and may include options that are not typically on the PEO’s list of services. PEOs that offer carve outs work with client companies to offer some but not all services, usually to maintain existing benefits that the client company may have. It will depend on the contract, but in most cases with a PEO with carve-outs, taxes will be paid under the PEO’s FEIN but health insurance and workers compensation insurance plans will be in the client company’s name.
Because there is such a range of what different PEOs offer, it can be hard to compare the different services and prices. Working with a PEO broker or advisor can help to make sense of the comparisons so that your company can get the best deal on the right services.