Frequently Asked Questions

1. What is a Professional Employer Organization (PEO)?

A Professional Employer Organization (PEO) helps businesses manage human resources tasks. This includes payroll, employee benefits, and following labor laws. Partnering with a PEO also gives companies access to better employee benefits, which is especially helpful for smaller businesses. PEOs may also offer consulting to help businesses deal with compliance issues and reduce the risk of legal problems.

2. What is the difference between HR outsourcing, a PEO, and an ASO?

HR outsourcing, PEOs, and ASOs all provide help with HR tasks, but they aren’t the same thing. Here’s how they differ:

• HR outsourcing is a broad term that covers any situation where a company contracts another organization to handle HR tasks. This could include payroll processing, recruiting, training, or benefits administration.
• PEO (Professional Employer Organization) arrangements include a legal co-employment relationship. The PEO becomes the employer of record for payroll tax filings and benefits, which allows access to large-group benefits and shifts part of the legal responsibility to the PEO.
• ASO (Administrative Services Organization) also takes on HR tasks, but without co-employment. The client company remains the sole employer of record, so taxes and benefits stay under the company’s name while the ASO provides administrative support.

This means a PEO changes the legal structure of employment, while an ASO and general HR outsourcing do not.

3. How does co-employment with a PEO work?

In a co-employment arrangement, the PEO acts as the official "employer of record" for payroll and benefits. This means that the PEO handles the paperwork for payroll taxes using its tax ID and is responsible for filing those taxes. They also manage benefit plans, enrolling employees in their larger group for insurance and securing better rates.

At the same time, the business remains the legal employer of its employees. It still has complete control over what jobs need to be done, workplace rules, and decisions about hiring and firing. This setup helps reduce risks related to labor laws, taxes, and payroll compliance, while the business retains ownership of its workforce.

4. Which HR functions can be outsourced and which ones should stay in-house?

Many businesses hire outside experts for tasks like payroll, employee benefits, workers’ compensation, and labor law compliance. Additionally, businesses often outsource recruiting, employee training, and the organization of HR paperwork.

On the other hand, activities that directly impact the company’s culture and how employees interact with each other—like boosting employee satisfaction, team building, evaluating performance, and resolving conflicts—usually stay within the company. This strategy helps organizations keep a strong bond with their employees and create a positive work environment that reflects their values and goals.

5. Do PEOs help with employee relations, investigations, or just administration?

Most PEOs go beyond administration by offering HR guidance, support for employee relations, and help with sensitive issues like workplace investigations. They may also provide training resources and compliance advice. The extent of this support depends on the specific PEO you choose.

6. If I outsource HR, do I lose control over how employees are managed?

No, outsourcing HR does not mean giving up control of your team. You remain in charge of hiring, promotions, performance management, and shaping your company culture. An outsourcing partner only takes care of the behind-the-scenes work like payroll, benefits, and compliance. This frees leaders to spend more time on culture, engagement, and developing people, rather than getting buried in paperwork.

7. Who is legally responsible for compliance issues, taxes, or penalties with a PEO?

In a PEO arrangement, the PEO becomes the “employer of record” for payroll taxes and compliance filings. This means the PEO shares legal responsibility for those areas. The client company still makes all business and personnel decisions, but the PEO helps reduce risk by handling filings correctly and staying up to date on regulations.

8. How do PEOs ensure compliance with state, federal, and local employment laws?

PEOs employ HR and compliance experts who monitor changing employment laws and update practices as needed. They handle filings, track deadlines, and make sure payroll and benefits stay compliant with all regulations. This reduces the risk of fines or legal issues for the client company.

9. What questions should I ask before choosing an HR outsourcing provider?

It helps to ask about pricing structure, contract terms, and what services are included. You should also ask about customer support, technology tools, and how the provider handles compliance. Finally, check their track record, reviews, and whether they hold certifications such as IRS CPEO status.