Is a PEO the Employer of Record?

This is a great question.

But first, before I answer, let’s talk do a little background information

What is a PEO?

A PEO – an acronym for Professional Employer Organization – is a business that provides professional services to other businesses for a fee. If your company were to decide to use a PEO, your company signs an agreement with a PEO that authorizes the PEO to handle specific business functions on your behalf.

What types of professional services does a PEO provide?

A PEO, if you were to enter into an agreement with it, would primarily handle your company’s payroll, tax filing, and a variety of HR duties, like hiring, terminations, employee manuals, compliances forms like I-9s, and more. PEOs also usually include an insurance component – primarily Workers Comp and Group Health – which may be mandatory or optional.

OK, now that it’s fairly clear what a PEO is and what it does, we can get to…

The Big Question

Is a PEO the Employer of Record?

The answer is: maybe.

It can be.

It could be, but;

It may not be.

That’s because there are two types of PEO arrangements: Employer of Record and Co-Employer.

Your PEO is either one or the other.

What are these two types of PEOs?

A Co-Employer is the arrangement where the PEO shares employer duties that your company has authorized it to do. You are the owner of your employees, but your company grants the PEO the authority – via co-ownership – to do the work as mentioned above. You may also grant the PEO to insure your employees on the PEO’s insurance plan.

An Employer of Record is where the PEO actually assumes ownership of your employees. What that means is that you, the company, are no longer the Employer or Record. The PEO is. You lease your employees back from the PEO. You continue to maintain care, custody, and control of your employees as if they were still your own.

Which type of PEO is better?

It’s not a matter of better. The question is which one is right for you, if you’re going to team up with a PEO?

Here are a couple reasons why an Employer of Record arrangement might be better for you:

• You have international employees or would like to have international employees. An EOR can make it easy and quick.
• Your Workers Comp is cost-prohibitively high because of your Xmod. Through the EOR, you no longer have employees, therefore, you have no workers comp of your own in place, therefore, you have no Xmod to worry about.

And here are a couple advantages of a Co-Employer arrangement:

• Your employees are yours, and your payroll and taxes are processed through your FEIN, not the PEO’s. You don’t have to give up your employees and lease them back. You simply want to delegate authority to the PEO to handle tasks you don’t want to have someone in-house do.
• Your Xmod is fine, but you want to get a better Workers Comp rate. In a co-employer situation, you get to keep your Xmod, but qualify for the low rates the PEO’s plan has.
• You’re a small business and want to take advantage of the PEO’s lower large-group health insurance rates.

There are of course other reasons to sign up with a PEO, which you can find here, if you want to take a deeper dive: https://gillespieinsuranceservices.com/is-peo-insurance-right-for-you/

I conclusion, there are two types of PEO arrangements – Employer of Record and Co-Employer – and they have different advantages. At the highest level, both arrangements do essentially the same thing and offer similar services. If you’re interested in knowing more about PEOs, please get in contact with me.