A PEO partnership also provides small businesses with access to improved health insurance and employee benefit offerings, which can assist with recruiting and employee retention. PEOs allow business owners to maintain control of their company and hire new employees as they see fit. The biggest distinction is that in a co-employment relationship through a PEO, the PEO does not provide staff for their client. This responsibility falls on the client, as do any other staff-related decisions.
This will lower your company’s administrative burden so that you can work on other aspects of the business. As a small business, you’ve probably had to deal with situations where you’re short-staffed and could really use an extra hand (or three) for the short term. Follow along to learn more about what is employee leasing, how it differs from professional employer organizations (PEOs), co-employment and joint employment. By outsourcing these to a PEO provider, the employer can focus on what they do best and grow their bottom line. However, employee leasing and PEO are different when it comes to day-to-day operations. The key is to recognize that the employees of an employee leasing firm are more fundamentally tied to that company, than a PEO is to its employees.
- Using a PEO company to help you manage your daily administrative tasks gives you more time to focus on running the business.
- When you take a look at the differences between employee leasing and co-employment (which is how PEOs operate), it becomes clear that this myth is far from the truth.
- With PEOs, the employees are still yours and the fees are way less than leasing and staffing companies.
- PEO is similar to the concept of ‘Employer of Record’ (EOR) services, where a third-party company becomes the legal employer of a workforce and takes over the compliance responsibilities of an employer.
In some countries, employee misclassification can lead to serious implications for companies and individuals. This is where a worker is classified as a contractor or freelancer but is actually working in more of an employee capacity. If a company is found to be misclassifying or disguising employees, this can lead to consequences. This is why it is beneficial to have a global PEO in place to ensure that companies are following the rules of the countries in which they operate. Often the term Professional Employer Organization (or ‘PEO’) is used interchangeably with the term ‘employee leasing’. All employees are either currently employed by the client or will be hired in the future by the client.
An employee leasing agreement allows for the responsibilities typically to be shared between the leasing company and the employer . By comparison, a leasing or staffing service supplies new workers, usually on a temporary or project-specific basis. These leased employees return to the staffing service for reassignment after completion of their work with the client company. Some define employee leasing as a temporary employment arrangement where one or more workers selected by the leasing or staffing entity is assigned to a customer frequently for a fixed period of time or for a specific project. Contractual Details—Contracts should spell out every detail of the arrangement that is being made. After all, human resources management is a complex area that is rife with complicated rules and regulations in the realms of payroll, benefits, etc.
The downsides of employee leasing
Industry organizations have attempted to clean up the industry by enforcing strict standards of conduct. For example, NAPEO requires its members to adhere to a strict code of ethics and professional operating standards. Audits certifying that taxes and insurance premium payments have been made on time must be filed quarterly. Members that self-insure any part of medical benefits to leased workers must adhere to minimum reserving practices and stop-loss insurance requirements, and they must purchase a bond. Employers should check into the financial condition of both the leasing company and the insurance companies it uses to provide benefits to employees.
Value of a PEO
Employment responsibilities are typically shared between the leasing company and the business owner . You retain essential management control over the work performed by the employees. The leasing company, meanwhile, assumes responsibility for work such as reporting wages and employment taxes. A PEO service is typically the most cost-effective option for an employer when the business owner has five or more full-time employees.
Small businesses can choose how they would like to do the employing just like employees can. A PEO vs. employee leasing creates two very distinct yet equally interesting solutions for employing and employee management. We’ll take a look at the two and help you make the best choice for your management preferences as a small business owner. A PEO, also known as a professional employer organization, is a company that practices employee leasing models.
Maintain Compliance
The leasing company can relieve the client of all payroll-related tax filings, including state and federal unemployment taxes and FICA taxes, state and federal tax withholdings, 401K deductions, any other withholdings. Some leasing companies will require a deposit to secure payments made by the leasing company on the client’s behalf. The specific responsibilities of each party what is peo employee leasing company should be spelled out explicitly in the contract. Responsibility for recruiting, hiring, training, disciplining, promoting, conducting performance reviews, and firing varies. Some leasing companies retain the sole responsibility for some or all of these functions primarily for liability reasons and to preserve their status as an employer or coemployer of the leased employees.
“Mod renting” was a common practice whereby an employer with a high debit experience modifier would transfer its employees to a leasing company with a modifier of 1.0. Some firms went so far as to establish a subsidiary leasing company whose only client was the parent. Moreover, the leasing company is responsible for handling admin fees, employment taxes, and paychecks of the leased employees. Essentially, the employee leasing company becomes the employer of record for the leased employees, while the client company benefits from access to qualified and competent workers. Employee leasing can also be defined as a business arrangement in which a staffing agency gives employees or human resources to another company during an agreed period. The administrative costs such as payroll, unemployment taxes and workers’ compensation are handled by the staffing company.
Don’t Let This Common PEO Myth Prevent Business Growth and Success
Just as convenience and grocery stores fill a specific need, the services that employee leasing and staffing companies provide (although different) are an invaluable resource for businesses. Complying with complex and ever-evolving federal and state employment laws is easier said than done. A PEO can assist with payroll and benefits compliance so you don’t have to worry about it. They’re experts in classifying employees correctly, issuing and filling out tax laws and ensuring you adhere to equal employment opportunity (EEO) and other laws. The employment duties met by the PEO and the company are shared between both, so that the PEO has responsibility for reporting wages and employment taxes, whereas the company has responsibility for the employee’s day-to-day work. The PEO is able to take control of the taxes, employee benefits, and contributions that are required when dealing with payroll which means that the company does not have to handle this.
The benefits of employee leasing
In this sense, there are not big waiting times or gaps between companies losing staff and waiting for new staff to join. Due to the connections and networks that PEOs have, finding highly https://adprun.net/ skilled specialists and experts in certain fields is not an issue. PEOs allow businesses like yours to outsource specific human resources administrative functions as well if needed.
This gives you free time to focus on marketing and retaining your customers instead of dealing with payroll or benefits administration. The most significant benefit of using a professional employer organization is the reduced administrative time. Since the PEO handles a large portion of your administrative tasks, you will have more time to focus on running your business. You can focus more on other core business functions geared towards generating revenue and growing your company.