PEOs offer human resources and benefits administration services to client companies, often acting as a human resources department for businesses that don’t have their own (or working in concert with an in-house HR team.) It’s like outsourcing human resource tasks to another company. To do this, the PEO has to officially employ its clients’ employees. This way, it meets the IRS’ definition of an employer so it can pay taxes from their withheld wages. Your employees join with all of the other client employees covered by the PEO. With this larger group platform, PEOs can get better rates for insurance and retirement plans.
On paper, the PEO employs your workers. They are known as the employer of record. Your business is still the worksite employer; you guide the employee’s work. In the contract with the PEO, your company (or the business owner) will be named as the on-site supervisor, with control over the worksite. Your company maintains control of operations and business decisions; the PEO handles employment-related tasks. Your business is still in charge of setting wages, day-to-day operations, and hiring and firing (though some PEOs may offer services to help you with this, if you choose.) You will handle disciplinary matters with employees, but the PEO may have resources for you to draw on to ensure that you handle the situation legally and avoid the risk of a lawsuit.
It is important to explain to your employees that you are still in charge of the business and of their work. You haven’t contracted them out nor sold them out. Joining with a PEO gives them better benefits and better human resource services than you had previously, and offers great online self-service options. They will not have new “bosses,” you’ll still be leading them and your corporate values will remain the same. The company is the same, only now it offers better benefits and has more potential for growth.
Co-employment does come with some risks: if your co-employer is sued, your company could also be involved in the lawsuit. However, working with a PEO reduces many of the risks that lead to lawsuits, and many PEOs have legal resources that your company can use.
Don’t be afraid of co-employment. Instead, be afraid of missing out on the great benefits of working with a PEO!