What is a PEO?
Professional employer organizations (PEOs) enable clients to cost-effectively outsource the management of human resources, employee benefits, payroll and workers' compensation. PEO clients focus on their core competencies to maintain and grow their bottom line.
Who uses a Professional Employer Organization (PEO)?
Any business can find value in a PEO relationship. An average client of a NAPEO (National Association of Professional Employer Organizations) member company is a business with 19 worksite employees. Increasingly, larger businesses also are finding value in a PEO arrangement, because PEOs offer robust Web-based HR technologies and expertise in HR management. PEOs can partner with companies that have 500 or more employees and work in conjunction with their existing human resources departments.
Landrum clients include many different types of businesses ranging from accounting firms to high-tech companies and small manufacturers. Many different types of professionals, including doctors, retailers, mechanics, engineers and plumbers, also benefit from PEO services.
How does a PEO arrangement work?
Once a client company contracts with Landrum, Landrum will then co-employ the client's worksite employees. In the arrangement among Landrum, a worksite employee and a client company, there exists a co-employment relationship in which both Landrum and the client company have an employment relationship with the worker. Landrum and the client company allocate responsibilities.
Landrum assumes much of the responsibility for the business of employment, such as risk management, human resource management, payroll and employee tax compliance. The client company retains responsibility for and manages product development and production, business operations, marketing, sales, and service. Landrum and the client company will share certain responsibilities for employment law compliance. As a co-employer, Landrum will provide a complete human resource and benefit package for worksite employees.
What is NAPEO?
Formed in 1984, the National Association of Professional Employer Organizations is the national trade association for the PEO industry. NAPEO is known both as NAPEO - The Voice of the PEO Industry® for government affairs and as The Source for PEO Education® due to the association's education and training programs. NAPEO promotes a Code of Ethics and a number of best practices to its member companies. NAPEO has nearly 400 PEO members operating in all 50 states, representing approximately 91 percent of the revenues of the $68 billion industry.
Are PEOs recognized as employers at the state and federal levels?
Yes. PEOs operate in all 50 states. Many states provide some form of specific licensing, registration, or regulation for PEOs. These states statutorily recognize PEOs as the employer or co-employer of worksite employees for many purposes, including workers' compensation and state unemployment insurance taxes. The IRS has accepted the right of a PEO to withhold and remit federal income and unemployment taxes for worksite employees. The IRS has promulgated specific guidance confirming the authority of PEOs to provide retirement benefits to workers.
Why would a business use a PEO?
Business owners want to focus their time and energy on the "business of their business" and not on the "business of employment." As businesses grow, most owners do not have the necessary human resource training, payroll and accounting skills, knowledge of regulatory compliance, or background in risk management, insurance, and employee benefit programs that meet the demands of being an employer. PEOs give small-group markets access to many benefits and employment amenities to which they would not otherwise have access.
Do the business owners lose control of their businesses?
No. The client retains ownership of the company and control over its operations. As co-employers, Landrum and client will contractually share or allocate employer responsibilities. Landrum will assume responsibilities associated with a "general" employer for purposes of administration, payroll, taxes and benefits. The client will continue to have responsibility for worksite safety and compliance. Landrum will be responsible for payroll and employment taxes, will maintain employee records. Because Landrum is responsible for workers' compensation, we also focus on and improve safety and compliance. In general terms, Landrum will focus on employment-related issues, and the client will be responsible for the actual business operations.
What is the difference between employee leasing and a PEO arrangement?
A PEO or co-employment arrangement involves all or a significant number of the client's existing worksite employees in a long-term, non-project related, employment relationship. Landrum brings services to the client, including the management of human resources, employee benefits, payroll and worker's compensation. Landrum assumes employer responsibility for employment tax, benefit plans and provides human resources advice and recommendations at the request of the client. Through the use of a PEO relationship, client companies make a long-term investment in their workers, because in most cases, the PEO provides access to health insurance, retirement savings plans, and other critical employee benefits for their worksite employees. If a PEO relationship is terminated, the co-employees will cease to work for Landrum but will continue as employees of the client.
Some older statutes governing PEOs still use the leasing terminology.
How many Americans are employed in a co-employment PEO arrangement?
It is estimated that 2-3 million Americans are currently co-employed in a PEO arrangement. The average PEO has grown more than 20 percent per year for each of the last six years, according to a survey of NAPEO members. About 700 PEOs that offer a wide array of employment services and benefits are operating today in 50 states. The PEO industry generates approximately $68 billion in gross revenues annually. PEOs have an 88 percent client retention rate due to strong client satisfaction. NAPEO member companies are estimated to account for more than 91 percent of the industry's gross revenues.
How do PEOs help their clients control costs and grow their bottom line?
The PEO's economy of scale enables each client company to lower employment costs and increase the business's bottom line. The client can maintain a simple in-house HR infrastructure or none at all by relying on Landrum. The client also can reduce hiring overhead. The professionals at Landrum can provide critical assistance with employer compliance, which helps protect the client against liability. In many cases, the client can pay a small up-front cost for a significant technology and service infrastructure or platform provided by Landrum. In addition, Landrum provides time savings by handling routine and redundant tasks for its clients. This enables the business owner to focus on the company's core competency and grow its bottom line.
How do employees benefit from a PEO arrangement?
Employees seek financial security, quality health insurance, a safe working environment and opportunities for retirement savings. When a company works with Landrum, job security is improved as Landrum implements efficiencies to lower employment costs. Job satisfaction and productivity increase when employees are provided with professional human resource services, training, employee manuals, safety services and improved communications. And in many cases, a co-employment relationship provides employees with an expanded employee benefits package, to include a 401(k), life insurance, disability insurance, discount plans, a flexible spending plan and more.
Do workers receive comprehensive benefits?
Frequently, a PEO arrangement is the only opportunity for a worker of many small businesses to receive Fortune 500 quality employee benefits like health insurance, dental and vision care, life insurance, retirement saving plans, job counseling, adoption assistance, and educational benefits. Without the PEO relationship, a small business can neither afford nor manage these benefits.
Who is responsible for the employees' wages and employment taxes?
Landrum assumes responsibility for payment of wages and compliance with the rules and regulations governing the reporting and payment of federal and state taxes on wages paid to its employees. Landrum has long established their role as reporting income and handling withholding, FICA and FUTA. In 2002, the IRS issued guidance confirming the ability of PEOs to offer qualified retirement benefits.
Who is responsible for state unemployment taxes?
As the employer for employment tax and employee benefits, Landrum assumes responsibility for payment of state unemployment taxes, and most states recognize the PEO as the responsible entity. In those states that require or allow the PEO to report unemployment taxes under its clients' account numbers, the PEO can still manage this responsibility.
Who is responsible for workers' compensation?
Many states recognize the PEO as the employer of worksite employees for purposes of providing workers' compensation coverage.
Does a PEO arrangement impact a collective bargaining agreement?
No. PEOs work equally well in union and non-union worksites. The National Labor Relations Board (NLRB) recognizes that in co-employment relationships, worksite employees may be appropriately included in the client employer's collective bargaining unit. Where a collective bargaining agreement exists, PEOs fully abide by the agreement's terms.
Do PEOs need to be licensed to provide insurance benefits to their workers?
Like other employers, a PEO may sponsor employee benefit plans for its worksite employees. Such benefits may be mandated by law, such as workers' compensation and unemployment benefits. Or they may be voluntary benefits that will help attract and retain quality employees, such as health, life, dental and disability insurance. PEOs as employers may sponsor or acquire programs for their employees. As such, PEOs are consumers of insurance and procure these benefits from licensed insurance agents and authorized insurers.