One question that gets asked quite a lot when it comes to professional employer organizations (PEOs), concerns employee ownership.
After all, in a typical arrangement with an employment agency, the client is usually the one with full contractual control over the workers.
However, things are a little different when the services of a PEO are called upon.
You see…
A PEO sources and ‘owns’ employees in a PEO joint employment relationship. The PEO then leases the employees to the clients. Contrary to popular opinion, you will not lose control over employment decisions if you enter a joint employment relationship with a PEO.
Although it is important to note that as a client you will still retain operational control over decisions involving pay, who to hire, and day to day responsibilities.
How Does a PEO work?
A PEO is a company that provides outsourcing services for human resources and payroll. They can help relieve the burden of administrative tasks for businesses of all sizes.
By outsourcing these administrative functions to a PEO, businesses can free up time and resources that can be better spent on other aspects of their operations.
In addition, a PEO can help to attract and retain top talent by offering a comprehensive suite of benefits and HR services.
Finally, a PEO can provide peace of mind by taking on the risk associated with employee management.
In a PEO relationship, the client company contracts with the PEO to assume certain responsibilities related to employee management.
The PEO then becomes the co-employer of the client’s employees, shared between the two companies.
More so, the PEO is responsible for complying with all applicable employment laws and regulations, as well as handling all payroll and benefits administration.
The client company retains ultimate control over employee hiring, firing, and day-to-day management.
The PEO model can provide significant advantages for businesses, including:
- access to a larger pool of talent;
- reduced liability exposure; and
- enhanced employee benefits.
Suppose you want to employ a worker from another country to work for your organization; you must establish a local entity office.
This will come with many extra costs and time wastage because you will be required to navigate through new employment laws, local taxes, benefits, payroll, and other compliance issues.
Failure to comply with any of these requirements will result in heavy penalties or even closure of your entity.
A PEO comes as an option to help you avoid all the problems that might arise with sourcing employees from different countries.
Usually, PEOs comprise of local companies that have a good understanding of the legal processes, regulations and offer HR services to their clients.
They will help you with employing new workers, payroll and HR admin services, as well as employee benefits such as compensation, retirement, medical, and all compliance matters.
This will enable you to focus on other strategic goals of your business without worrying about employment compliance matters.
Employee ownership in a PEO
Although you will still retain ownership of your entire business as a PEO client, the PEO will take control of all the HR-related areas.
This means that the PEO will be the employer of all your workers, and they will be fully responsible for all of their needs and daily tasks.
It takes over payroll processing, benefits, taxes, and compensation for the hired employees.
Just from the PEO name, you can also be able to deduce that these organizations are the professional employers of their client’s workers.
What this means on a deeper level is that the client organization reports its payments and salaries under the PEO service providers’ Federal Employment Identification Number (FEIN).
Ultimately, all the employee liability is transferred to PEO in a professional arrangement with them.
They can hire or fire employees, but of course would only do so after having consulted with the client.
Final thoughts
This article should have helped you understand which business entity owns the employees in an arrangement with a PEO.
Just to recap…
The PEO owns the employees in a joint employment relationship with a client. The workers are then leased to the client, with the latter still retaining significant control over employment decisions despite not being in primary control within the relationship with the PEO.
If you’re after PEO services, then feel free to get in touch with us at Flexi Personnel via our contact form.
Alternatively, you can check out some of our other PEO-related blog posts, such as:
