What is a PEO? A PEO is a Professional Employer Organization that allows small to medium size businesses to outsource their human resource management, employee payroll and taxes, employee benefits including retirement programs, health insurance, workers' compensation coverage, unemployment insurance, workplace risk/safety management, compliance with federal and state employment laws, labor and workplace regulatory requirements and related administrative responsibilities including recruiting, training and development.

A PEO provides services to manage human resource responsibilities and employer risks for client companies that reduces the company's employee liabilities and costs. These services are provided by establishing and maintaining an employer relationship with the employees at the client companies' location(s) and assuming certain employer rights, responsibilities, and risk. When your employees become employees of a PEO they immediately join a larger employee group with tremendous leverage to negotiate lower health insurance premiums and workers' compensation insurance.

The PEO leases the employees back to the employer under the PEO's Service Agreement. This employee outsourcing is generally defined as co-employment, employee leasing, or staff leasing. The original employer remains responsible for day-to-day work assignments, supervision and training at the employees' worksite.

The advantages of outsourcing employees is to save time and staff that would be used to prepare payroll and administer benefit plans, and reduce or eliminate numerous legal liabilities or obligations both corporate and personal to employees that it would normally have. The client company will be able to offer a better benefits package that could only be made available at a prohibitively higher cost to both the employer and the employees to attract and retain skilled employees.

A Professional Employer Organization (PEO) is able to cost-effectively manage all Human Resource(HR) related functions by acting as a co-employer of your staff. This allows your business to focus resources in other areas to grow your business and increase your profitability.

In 2007, there were approximately 750 national and regional PEO companies operating in the United States covering over 3 million workers. Many small to medium sized professional services firms use PEOs to allow them to provide the kinds of benefit plans that are only available to large companies.