A PEO is a type of company that provides HR-related services to businesses, such as payroll, benefits and risk management. PEOs allow businesses to outsource these tasks and focus on their core operations.
PEOs are often used by small and medium-sized businesses that may not have the resources or expertise to manage these tasks in-house. They can help businesses save time and money by handling HR tasks efficiently and effectively and can also provide access to a wider range of benefits and resources than the business might be able to afford on its own, such as health insurance.
How Does a PEO Work?
PEOs work by entering into a co-employment relationship with the businesses they serve. This means that the PEO becomes the employer of record for tax and compliance purposes, while the business retains control over its day-to-day operations and decision-making. The PEO handles HR tasks, such as payroll, benefits and workers’ compensation, and provides support and resources to help the business manage its employees.
PEO vs. HRO vs. ASO
PEO, HRO and ASO are all acronyms that refer to different services that businesses can use to outsource HR tasks. Which type of service is best for a particular business will depend on its needs and goals. PEOs can be a good choice for businesses that want a comprehensive solution that includes a wide range of HR-related services, as well as support and resources to help them manage their employees.
HRO and ASO may be more suitable for businesses that only need to outsource certain HR tasks or want more control over their HR functions. Ultimately, the best choice will depend on the specific needs and goals of the business.
Here is a brief overview of each:
PEO
A PEO is a company that provides a range of HR-related services to businesses, such as payroll, benefits and risk management. PEOs allow businesses to outsource these tasks and focus on their core operations. PEOs work by entering into a co-employment relationship with the businesses they serve, which means that the PEO becomes the employer of record for tax and compliance purposes while the business retains control over its day-to-day operations and decision-making.
HR Outsourcing (HRO)
HRO is the practice of outsourcing HR tasks to a third-party provider. HRO can include a wide range of services, from payroll and benefits administration to recruiting and training. HRO providers rarely assume co-employment responsibilities and do not become the employer of record for tax and compliance purposes.
Administrative Services Only (ASO)
ASO refers to a type of outsourcing arrangement in which a business contracts with a third-party provider to handle certain administrative tasks, such as payroll, benefits and HR compliance. ASO providers do not assume co-employment responsibilities and do not become the employer of record for tax and compliance purposes.
What Is a Certified PEO?
A certified PEO (CPEO) is a PEO that has been certified by the IRS. To become a CPEO, a PEO must meet certain requirements, including:
- Be in good standing with the IRS: The PEO must have a clean record with the IRS and be up to date on all tax filings and payments.
- Have a bond in place: The PEO must have a surety bond in place to protect its clients’ tax liabilities.
- Demonstrate financial stability: The PEO must provide financial information to the IRS to demonstrate that it is financially stable and capable of fulfilling its obligations to its clients.
- Comply with certain employment tax requirements: The PEO must comply with certain employment tax requirements, such as withholding and depositing employment taxes on behalf of its clients.
The CPEO certification is designed to give businesses confidence that they are working with a reputable and trustworthy PEO that has the necessary resources and capabilities to handle their HR-related tasks effectively. It is important to note that not all PEOs are CPEOs, and businesses should research carefully any PEO they are considering working with to ensure that it meets their needs and expectations.
