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5 Quick Facts about Professional Employment Organizations (PEO)

Every year, more companies are partnering with Professional Employer Organizations to lower overhead; free up valuable time and resources to focus on their core business activities; and offer more robust compensation packages to their employees.

Professional Employment Organizations (PEO) make it easy and affordable for your small to midsized business to manage your human resources, benefit packages, and employment related taxes. They also allow you to offer more comprehensive benefit packages to your employees at a lower cost than if you provided them yourself.

According to, the PEO industry has grown every year for the past 30 years. As many as 180,000 small businesses outsource HR and employment services to PEOs every year. And businesses that use PEOs are 50% less likely to go out of business than those that don’t. That’s impressive.

So, what is a PEO? How does that work, exactly? Maybe you know about PEOs but think your company is too small to afford to use a PEO or get much benefit from it.

Check out these 5 quick facts about PEOs that will help you better understand what they are, how they work, and if a PEO may be the right fit for you.

1.    What is a PEO?

PEOs partner with your business to provide a comprehensive human resource solution that includes, health benefits, retirement investments, payroll, and compliance. This provides your small to mid-sized business access to high quality comprehensive benefit packages you otherwise probably can’t afford to offer. 

When you partner with a PEO, you are able to focus more on your core business processes that make you money and less on administrative tasks that consume time and resources.

2.    PEOs and clients are co-employers

PEOs and their client companies enter into what is called a co-employment arrangement. This is important because it allows you to receive access to medical and other employee benefits that a large corporation would while still maintaining control of your employees.

The PEO typically will oversee remittance of payroll, payment of federal, state, and local taxes, retirement benefits, and workers’ injury compensation (and thus sometimes safety as well). You retain ownership of you company and full control over employee production, worksite maintenance, and safety.

3.    It’s all in the Client Service Agreement (CSA)

PEOs use a contract called a CSA to define the roles and responsibilities of both the client and PEO. A CSA will list the parties bound by the contract, the date the contract was signed, and a list of clauses that both parties have agreed to. Although every CSA is unique, common sections include the following:

·         A list of services the PEO will provide

·         Service fee you will pay the PEO

·         How workers’ compensation and employee liability are handled

·         Benefit plans

·         Limit of services

·         How government investigations are handled

·         General provisions

·         Right to terminate service

4.    PEOs offer your employees access to 401(k) plans and other benefits

One of the best reasons to partner with a PEO is the quality of benefit packages a PEO can provide. Although you would like to, as a small business you simply may not be able to afford to provide killer benefits for your workforce.

But you know that in order to retain good employees, at a minimum, you have to offer health insurance. This is exactly why many employees end up with expensive bare-minimum health insurance that doesn’t really cover much.

However, a PEO leverages the bulk purchasing power of all of their clients’ employees to drive down the rates they can offer them. This allows employees cost effective access to 401k retirement plans and dental, vision, and disability insurance they normally wouldn’t have.

5.    Companies that use a PEO are 50% less likely to go out of business (

There a few big benefits you realize when partnering with a PEO aside from the cost savings and the quality of the benefits you can offer your employees. PEOs are HR, payroll, tax, and compliance professionals. The organization and expertise they bring to the arrangement is priceless.

The resources your company has to allocate to stay compliant with ever-changing regulations can really tap into profits. That’s assuming you have a competent well trained staff that stays up to date with all current regulations. If not compliant or properly protected, one liability claim can literally put you out of business.

A PEO will be invaluable partners when it comes to employer liability, workers’ compensation, and HR claims that will inevitably be brought against almost every thriving business at one time or another.  

Although not a right fit for every small business, hundreds of thousands of companies employing millions of workers profit from a PEO partnership. Contact The Cody Group today to learn more.

Dominic Piccirillo