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Professional Employee Organization (PEO)

The History of  PEO Organizations

Employee leasing policies first came into existence in the late 1960's as an alternative to traditional Stand Alone Worker's Compensation policies. Up until this point companies that could not secure worker's compensation thru the private markets were forced to secure workers comp thru state sponsored markets such as the Florida Worker's Compensation Joint Underwriting Association (FWCJUA). As of the year 2010 there was records of over 700 PEO's within the United States with appetites for all different types of risks.

How does a (PEO) Professional Employer Organization  work? 

A Professional Employer Organization is considered a co-employment arrangement. In this model the PEO hires your employees and becomes the employer of record. Employment responsibilities are typically shared between the leasing company and the business owner. You the business owner maintains essential management control over the work performed by the employees and the day to day operations. The leasing company, meanwhile, assumes responsibility for work such as reporting wages and employment taxes filing the tax reports to the IRS under the PEO's FEIN or Tax ID number.

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Under this arrangement,  you the business owner technically have 0 employees as the PEO is the employer of record. As the business owner you are responsible for reporting the true total payroll for ALL employees working to the PEO so that they can in turn send you an invoice for the total amount owed for the worker's compensation, employer / employee matching taxes to the government and the administrative fees billed by the PEO for processing the payroll and assuming some of the liability for the employees. This is billed on a "per pay period" basis and typically can be paid weekly, bi-weekly or semi-monthly. Since you are paying the worker’s comp, taxes and admin fees on a “pay as you go” basis, this is why there are no audits with the PEO policy model which can be a time-saving benefit for you as worker’s compensation audits can be grueling and time-consuming.

Most PEO's even provide employee safety handbooks, EPLI insurance, manage any claims and/or unemployment disputes and even offer levels of background and drug screenings. This can be a simpler, easier way of securing worker's compensation for your business. PEO options can allow you to secure worker’s compensation at a lower cost than you would be able to obtain individually thru the private or state funded markets.

PEO’s can also allow you to add labor employees without adding administrative complexity. Under the PEO arrangement the employee leasing company will manage compliance with state and federal regulations, payroll, unemployment issues, producing annual W-2’s and other paperwork. Some also offer pension and employee assistance programs.

The PEO ensures that your employees are paid, offered the appropriate benefits coverage and that all record keeping is complete and accurate. Additionally, today’s regulatory environment is constantly changing and the legal expertise of the PEO, ensures that your company complies with all regulations and provides you with access to knowledgeable human resources professionals. The PEO can assist you with staying on top of changes that affect your business, including State Wage and Labor Law Compliance, Safety/OSHA requirements and Worker’s Compensation.

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Once you complete the policy application forms and submit them to the PEO’s of your choice, underwriting will then approve or decline to take you on under the policy. Once approved and you agree to the terms a formal Leasing Agreement will be issued specifying the division of responsibilities between the PEO and you the customer. A common misconception is loss of control through co-employment. Companies working with PEOs retain complete control over operations, workforce management, building company culture and defining the employment brand. Dealing with the day to day gathering of employee information and documentation; the enrollment process, benefits, worker’s compensation, the time-consuming processing of weekly or bi-weekly payroll, tax filings, etc.; outsourcing even a portion of your HR tasks can afford you the freedom to focus on core activities that will help you grow your business. That is why today, more and more companies are choosing to use the service of a Professional Employer Organization (PEO).

Think about it – Who in your office is spending the majority of his or her time on HR related matters? Is it you? Maybe one of your key and most valuable employees? PEO’s can be a cost effective and efficient way to keep costs down and maximize efficiency and productivity.

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Isela Gonzalez

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