A PEO, or Professional Employer Organization, is a firm paid by companies to serve as the employer of record for their employees, taking on payroll, benefits, and employment compliance.
PEOs work under a co-employment model: the PEO is the employer of record for tax purposes and files payroll taxes under its own tax identification numbers, while the client company continues to direct its employees' day-to-day work. Services typically include payroll processing, workers' compensation insurance, health benefits, retirement plans, and HR and compliance support. Since 2014 the U.S. Internal Revenue Code has also defined certified professional employer organizations, which operate under their own federal employment tax rules.
For the employer, the arrangement offers several benefits:
- Less distraction from non-essential administrative tasks
- Reduced risk
- Simpler taxes for remote organizations
- Outsourced administration of employee regulatory and compliance issues
- Keeping up with the latest regulations without tracking them in-house