Professional employer organizations (PEOs) currently provide services to nearly 175,000 small
and mid-sized businesses in the United States. It’s reported that these businesses grow up to
9% faster, have employee turnover up to 14% lower, and are half as likely to go out of business
as companies that do not use PEOs. However, many businesses lack a thorough understanding
of what PEOs are and how they can assist with growth and long-term success. Here, we’ll
provide further insight into how PEOs work and discuss the main benefits they’re able to provide
What Does PEO Stand For, And How Do PEOs Work?
PEO stands for professional employer organization, and this type of entity provides
comprehensive HR assistance to businesses. Basically, individual businesses outsource their
HR responsibilities to PEOs but remain in full control of their day-to-day operations, allowing the
business to focus primarily on productivity and profitability.
PEOs also help alleviate costs associated with workers’ compensation coverage, employee
benefits, and maintaining government compliance through the establishment of co-employment
relationships. Co-employment relationships are based on the concept of economies of scale
and involve pooling similar businesses together in order to receive significant discounts on
per-unit costs. To accomplish this, employees are moved from
the Federal Employer Identification Number (FEIN) of their individual business to the PEO’s
By using a PEO, employees of small and midsize businesses are able to acquire employee
benefits that are typically accessible only to large businesses, including 401(k) plans, health
insurance, and dependent care.
Top PEO Benefits: PEO Workers’ Comp, PEO Risk Management,
and PEO Payroll Services
PEO’s were initially created in Florida over 30 years ago to reduce the cost of workers’
compensation coverage. As such, one of the main benefits of using PEOs to this day is
obtaining significant discounts on workers’ compensation premiums, sometimes up to 40% off.
After a business has moved its employees over to the PEO’s policy, it’s no longer responsible
for paying upfront deposits that are generally required each year. Additionally, premiums are
now built into the billing rate foregoing the need for an annual audit, and any loss claims will be
reported on the PEO’s experience claims rather than affecting the experience modifier of the
Since a PEO has essentially taken on responsibility for its clients’ liabilities, most will provide
comprehensive safety and risk management services, host training sessions, and provide
consulting services as needed in order to keep all of the employees it covers safe. The PEO will
also take on workers’ compensation claims management and defense of fraudulent workers’
compensation claims as well.
In addition to these benefits, PEOs also provide major payroll and HR services. PEO payroll
services include calculating, filing, and remitting quarterly payroll 940 and 941 reports and
deposits along with processing employee garnishments, deductions, producing W-2s, and
handling employee questions at the end of the year. Additional PEO HR services include
processing unemployment claims, performing background checks, assisting with hiring and
termination, and ensuring that each company is in compliance with both state and federal
Hire a PEO Service Provider Today
If your business is looking to save both time and money when it comes to completing tasks
related to payroll, workers compensation, employee benefits, and human resources, then it’s
time to bring on a PEO service provider today. While each PEO has its own specialties
depending on the industry it serves, you can rest assured that it will enable your business to
prioritize generating revenue and focus on its central mission.