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What Does a PEO Stand For?

what does peo stand for

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Key Takeaways

1. PEO stands for ‘Professional Employer Organization’, a company providing key HR and compliance services for businesses in growth-mode, both domestically and internationally.

2. All PEOs usually have a range of “core” services that are similar, plus a range of other non-standard services that are specific to individual PEOs and jurisdictions. 

3. With a PEO or Global PEO solution, a PEO becomes the legal employer for your workforce, taking over compliance, tax, and payroll responsibilities. However, the workers still operate at the direction of your company on a day-to-day basis.  

4. Benefits of PEO solutions include fast-tracked entry to foreign markets, more cost-effective expansion, and assurance of full legal compliance. 

“PEO” refers to “Professional Employer Organization,” a firm that provides comprehensive co-employment and employer of record services, particularly beneficial for businesses aiming to penetrate international markets.

A PEO assumes responsibility for the vast array of human resources and administrative tasks associated with managing a global workforce. This is particularly advantageous for companies like yours looking to expand internationally without the daunting challenge of navigating unfamiliar legal, regulatory, and cultural landscapes.

In this guide, we will explore the concept of a PEO, elucidating its role in various domains, including human resources, payroll, insurance, and benefits administration. Furthermore, we will demonstrate how leveraging a PEO’s services can facilitate the rapid hiring and deployment of employees in new operational territories, thereby accelerating your business’s international growth.

What Is a Peo and What Does It Stand For?

A Professional Employer Organization (PEO) provides comprehensive HR and employment management services to businesses ranging from startups to large international corporations. Services include recruitment, payroll management, and employee benefits administration.

Essentially, a PEO acts as an ’employer’ to a client company’s workforce, particularly when the company lacks the resources or expertise to manage employee services. This is done through ‘co-employment’ or as an ’employer of record’.

In the context of international expansion, utilizing a PEO allows businesses to swiftly access new markets and reap the benefits of an international workforce without the burdens of establishing a foreign entity, navigating legal compliance, or dealing with extensive administrative tasks. This facilitation typically occurs via co-employment or an employer-of-record arrangement.

Does Peo Mean the Same Thing as Co-employment?

Co-employment is a work arrangement where two companies (in this case, the client business and the PEO) have obligations as an employer.

Co-employment is one way in which a PEO can operate: When PEOs act as co-employers for employees, the client business typically retains responsibility for managing these employees’ day-to-day job duties and functions.

Meanwhile, the PEO manages functions like payroll, preparing taxes, and human resources. Because the PEO has certain obligations to these employees, it means that these people are technically employed by both the PEO and the client business.

Most PEOs are large firms, which means that they can tap into a whole range of benefits for those employees that wouldn’t otherwise be available. Some examples of common employee benefits that are available in a co-employment arrangement include:

  1. Medical and dental care
  2. Retirement plans
  3. Competitive pension schemes
  4. Short-term and long-term disability insurance
  5. Educational programs & assistance
  6. Enterprise training programs.

And because the PEO can access these on behalf of the client company, there’s no need to do things like negotiate rates and terms or manage employee enrollment.

Does PEO Mean the Same Thing as Employer of Record (EOR)?

An alternative to co-employment is the “Employer of Record” (EOR) model, where a Professional Employer Organization (PEO) acts as the primary employer for a client’s employees within a specific jurisdiction. This is particularly useful when the client company wants to quickly expand into new territories without establishing a legal entity.

An EOR is a third-party organization, often a PEO, that undertakes the responsibility of hiring and managing employees, including providing compliant employment contracts, whether fixed-term or indefinite. Unlike co-employment, the EOR assumes full responsibility for all employment aspects and associated formalities.

Engaging an EOR allows companies to swiftly and legally onboard an international workforce without forming a local subsidiary, thus avoiding potential breaches of local employment laws and norms.

 

For more detailed insights into how EORs operate and their benefits, you can explore further into “What Is an Employer of Record and How Does It Work?

As an Employer of Record, the PEO: 

  • Arranges all work permits and visas for employees, avoiding delays
  • Provides a registered entity for operating compliant payroll
  • Meets all local laws and customs relating to the host country
  • Advises the client business of things like notice periods and severance pay
  • Acts as the interface between the international employees and the authorities. 

How Does a PEO Work?

Under a service agreement with a PEO, the client company establishes the following terms:

  1. While the client remains the primary employer at the worksite, the PEO undertakes certain HR administrative duties. This arrangement allows the PEO to augment the client’s existing HR department and staff.
  2. The client company retains the responsibility for the recruitment and direct management of its employees and overseeing business operations unrelated to employees, such as sales, marketing, and customer service.
  3. The PEO manages the processing of employee salaries, benefits, and deductions, along with the submission and reporting of taxes to the relevant state and federal authorities throughout the contract term.
  4. The PEO aids the client company in adhering to complex employment legislation by monitoring employment laws and offering risk management strategies. This includes navigating payroll tax laws, workers’ compensation, and employee relations matters.
  5. An HR specialist may collaborate with the client company to proactively manage potential risks, thereby mitigating concerns related to employee relations, accommodations, terminations, and other workplace issues.
  6. Certain responsibilities, for instance, creating an employee handbook, might be a joint effort between the client company and the PEO, as defined in the service agreement.
  7. PEOs provide comprehensive HR services, enabling businesses and their internal HR teams to concentrate on fostering company culture, enhancing client satisfaction, and boosting employee engagement.
  8. The client company gains access to a wider array of benefit options through the PEO and support in managing these benefits.

What Does PEO Stand for In HR? 

As mentioned, a crucial part of a PEO’s operation is providing HR services for client companies. This means: 
  1. Providing compliant employment contracts
  2. Onboarding employees 
  3. Dealing with complaints, grievances, and performance management issues
  4. Employee dismissal, in line with local employment laws. 

What Does PEO Stand for In Payroll?

As mentioned, in the payroll context, a PEO means a company that takes over payroll processing and tax compliance on behalf of a client company. This includes: 

  1. Maintaining complete payroll records
  2. Ensuring all workers receive the correct remuneration according to their pay cycle
  3. Making the necessary payroll deductions
  4. Checking/auditing delivery
  5. Ensure that any bonuses are paid according to legal requirements
  6. Check that relevant tax payments are deducted
  7. Carry out direct deposits (or instruct their banks to), and
  8. Deliver any relevant paperwork.

What Does PEO Stand for In Benefits Administration? 

PEOs are in charge of administering employee benefits for all workers that they employ. This includes both mandatory and non-mandators benefits such as: 

  1. Annual leave or vacation leave, whether paid or un-paid. 
  2. Sick leave
  3. Parental/maternity/paternity leave, whether paid or unpaid
  4. Workers’ compensation, covering workplace-related injuries
  5. Disability insurance, covering contributions related to long-term injury
  6. Retirement contributions, covering payments to retirement and pension schemes. 

What Does PEO Stand for In Insurance? 

Due to economies of scale and the breadth of their operations, PEOs can often secure the most cost-effective insurance packages for employees. The PEO also regularly reviews compliance and market offerings to ensure that client companies are getting the best deals possible at all times. 

Read about how PEOs enable beneficial insurance packages at What Is PEO Insurance? In summary, the kinds of insurance often offered by PEOs include:

  1. Health insurance. Whether compulsory or optional, PEOs can often get a better deal on health insurance for employees than client companies themselves can get.
  2. Workers’ compensation. This is a type of insurance replacing employee wages in case of injury
  3. Disability insurance. This insurance covers long-term disability
  4. Life insurance. This provides a lump sum for distribution to the family in case of death
  5. Unemployment insurance. This provides an enhanced entitlement for wage-replacement (e.g., 80 percent) than is available under general social welfare systems. 

What Doesn’t a PEO Do?

A PEO operates distinctively unlike leasing or staffing firms, which typically offer temporary or project-based workforce solutions. Rather than providing short-term labour for scenarios like employee absences, temporary skill shortages, or peak seasons, PEOs do not supply workers to worksites. Instead, they deliver a suite of services and benefits to both the worksite employer and the client’s employees.

Often confused with other types of outsourcing organizations, PEOs—also known as professional employment or employer organizations—differ significantly from:

  • Staff leasing companies
  • Employee leasing companies
  • Managed payroll services
  • Human Resources Outsourcing organizations (HRO)
  • Administrative Services Organizations (ASO)

PEOs do not take over the management of your business or your workforce. Instead, they offer HR consultancy and support, providing a reliable source of assistance when needed. PEOs are not intended to displace your existing HR team but to supplement and enhance your HR capabilities with specialized and additional expertise in areas like regulatory compliance, safety, benefits, risk management, and other HR and employee-related matters.

Why Use a PEO?

Professional Employer Organizations (PEOs) are equipped with specialists in human resources, tax, legal, and payroll, providing an invaluable partnership for successful international expansion. Businesses working with PEOs enjoy significantly lower employee turnover rates — up to 14% less — and can experience up to 9% faster growth, according to the National Association of Professional Employer Organizations (NAPEO).

Key benefits of partnering with a PEO include:

  1. Fast Market Entry: PEOs facilitate rapid entry into new markets by eliminating the need for setting up a foreign entity, allowing businesses to swiftly seize opportunities and operationalize.

  2. Lower Costs: Avoid the substantial financial and time investments required in establishing an international entity, such as local banking and capital deposits, by leveraging a PEO’s services.

  3. Minimum Risk: PEOs, armed with current knowledge of local employment laws, taxes, and customs, ensure your business remains compliant, significantly reducing operational risks. Partnering with a PEO allows you to explore new markets while minimizing potential losses compared to going it alone.

  4. Streamlined Compliance: Utilizing a global PEO offers the major advantage of offloading complex regulatory compliance to experts. They guide you through hiring internationally, ensuring everything from compensation to terminations aligns with local laws, including accurate tax withholdings and statutory benefits.

  5. Complete Flexibility: PEOs offer unparalleled adaptability, a trait particularly valuable during unforeseen events like the COVID-19 pandemic. They swiftly adjust contracts to changing circumstances, from altering work hours to reassigning roles, ensuring your business remains dynamic and competitive globally.

 

Who Should Use a PEO?

PEO services cater to businesses of all types and sizes, including:

  1. Start-ups: These firms often outsource human resources functions to handle growth efficiently. Global PEOs provide scalable solutions, enabling rapid workforce expansion and cost-effective recruitment.

  2. Small and Medium-Sized Enterprises (SMEs): Many SMEs utilize PEOs to support global operations and market expansion. PEOs offer transformative solutions, helping SMEs to enter new markets and manage international teams.

  3. Large Enterprises: Not limited to smaller businesses, large corporations, including international and Fortune 500 companies, also benefit from PEOs. These organizations use PEOs to expedite international expansion and manage overseas talent more effectively, leveraging the PEO’s existing infrastructure for speed and efficiency.

 

Does Horizons provide a PEO Solution?

When you partner with Horizons, you can immediately tap into valuable, emerging international markets without needing to establish a local entity or subsidiary and in full compliance with local and international laws. 

Contact Horizons PEO to discover how you can fast-track your international hiring, and save thousands of dollars along the way.

Frequently Asked Questions

A PEO means a Professional Employer Organization. This is a company that specializes in taking over HR, payroll and compliance tasks on behalf of client companies.

Companies use PEO solutions as they: 

  • Streamline compliance
  • Save money 
  • Allow for faster entry into foreign markets
  • Enable the company to focus on their core business. 

In a PEO arrangement, your employees are co-employed by the PEO. This means the PEO shares certain employer responsibilities, often handling tasks like payroll, benefits administration, and compliance. The client company retains control over day-to-day operations and managing the workforce.

Most businesses can use a PEO, but it’s particularly beneficial for small to mid-sized organizations that may not have the resources or expertise to handle complex HR issues internally.

PEOs typically charge a fee based on a percentage of overall payroll or a per-employee per-month fee. The pricing structure may vary depending on the range of services provided.

Hire and pay talents
with Horizons in
180+ countries

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