Astra PEO FAQ
What is a PEO?
Are PEOs recognized as employers?
What is the difference between employee leasing and a PEO arrangement?
Why would a business use a PEO?
Do the business owners lose control of their businesses?
How many Americans are employed in a co-employment PEO arrangement?
How do PEOs help their clients control costs and grow their bottom line?
How do employees benefit from a PEO arrangement?
Do workers receive comprehensive benefits?
Who is responsible for the employee's wages and employment taxes?
Who is responsible for state unemployment taxes?
Who is responsible for employment laws and regulations?
Who is responsible for workers' compensation?
Does a PEO arrangement impact a collective bargaining agreement?
Do PEOs need to be licensed to provide insurance benefits to their workers?
Why is it important a PEO have audited financial statements?
Is a PEO’s financial statement publicly available?
What is a PEO?
A professional employer organization (PEO) is a company which contractually assumes and manages critical human resource and personnel responsibilities and employer risks for its small to mid-sized business clients by establishing and maintaining a co-employer relationship with worksite employees.
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Are PEOs recognized as employers?
PEOs operate in all fifty of the United States. Twenty-three states provide some form of specific licensing, registration, or regulation for PEOs. Many states statutorily recognize PEOs as the employer or co-employer of worksite employees for purposes of workers' compensation and state unemployment insurance taxes. The IRS has long accepted the right of a PEO to withhold and remit federal income and unemployment taxes for worksite employees. The IRS has promulgated specific guidance confirming the authority of PEOs to provide retirement benefits to workers.
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What is the difference between employee leasing and a PEO arrangement?
Although older statutes governing PEOs still use the leasing terminology, PEOs are in fact based on the co-employment of an existing workforce. Today, the major distinction is that a leasing or staffing service supplies new workers on a temporary or project-specific basis. These leased employees return to the staffing service for reassignment after completion of their work at the client. Some would define employee leasing as a supplemental, temporary employment arrangement where one or more workers are assigned to a customer for a fixed period of time, often for a specific project. This concept creates little long-term equity or investment between the worker and customer (much like leasing a car for two years and knowing that you are using it for a specific need but not building any long-term equity).
A PEO or co-employment arrangement, however, involves all or a significant number of the client's existing worksite employees in a long-term, non-project related, employment relationship. The PEO assumes employer responsibility for employment tax, benefit plans, and other human resource purposes. Through the use of a PEO relationship, client companies make a long-term investment in their workers, because in most cases, the PEO provides access to health insurance, retirement savings plans, and other critical employee benefits for their worksite employees. In the event a PEO relationship is terminated, the co-employees will cease to work for the PEO but will continue as employees of the client.
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Why would a business use a PEO?
Business owners want to focus their time and energy on the "business of their business" and not on the "business of employment." As businesses grow, most owners do not have the necessary human resource training; payroll and accounting skills, the knowledge of regulatory compliance, or the backgrounds in risk management, insurance and employee benefit programs to meet the demands of being an employer. PEOs give small-group markets access to many benefits and employment amenities they would not have otherwise.
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Do the business owners lose control of their businesses?
No. The client retains ownership of the company and control over its operations. As co-employers, the PEO and client will contractually share or allocate employer responsibilities and liabilities. The PEO will generally only assume responsibilities and liabilities associated with a "general" employer for purposes of administration, payroll, taxes and benefits. The client will continue to have responsibility for worksite safety and compliance. The PEO will be responsible for payroll and employment taxes, will maintain employee records and reserves a right to hire and fire. Because the PEO also may be responsible for workers' compensation, many PEOs also focus on and improve safety and compliance. In general terms, the PEO will focus on employment-related issues and the client will be responsible for the actual business operations.
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How many Americans are employed in a co-employment PEO arrangement?
It is estimated that 2-3 million Americans are currently co-employed in a PEO arrangement. The average PEO has grown more than 20 percent per year for each of the last six years, according to a survey of NAPEO members. About 700 PEOs that offer a wide array of employment services and benefits are operating today in 50 states. The PEO industry generates approximately $61 billion in gross revenues annually. PEOs have an 88 percent client retention rate due to strong client satisfaction. NAPEO member companies are estimated to account for more than 90 percent of the industry's gross revenues.
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How do PEOs help their clients control costs and grow their bottom line?
The PEO's economy of scale enables each client company to lower employment costs and increase the business's bottom line. The client can maintain a simple in-house HR infrastructure or none at all by relying on the PEO. The client also can reduce hiring overhead. The professionals at the PEO can provide critical assistance with employer compliance, which helps protect the client against liability. In many cases, the client can pay a small up-front cost for a significant technology and service infrastructure or platform provided by the PEO. In addition, the PEO provides time savings by handling routine and redundant tasks for its clients. This enables the business owner to focus on the company's core competency and grow its bottom line.
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How do employees benefit from a PEO arrangement?
Employees seek financial security, quality health insurance, a safe working environment and opportunities for retirement savings. When a company works with a PEO, job security is improved as the PEO implements efficiencies to lower employment costs. Job satisfaction and productivity increase when employees are provided with professional human resource services, training, employee manuals, safety services and improved communications. And in many cases, a co-employment relationship provides employees with an expanded employee benefits package, to include a 401(k), life insurance, disability insurance, discount plans, a flexible spending plan and more.
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Do workers receive comprehensive benefits?
Frequently, a PEO arrangement is the only opportunity for a worker of many small businesses to receive Fortune 500 quality employee benefits like health insurance, dental and vision care, life insurance, retirement saving plans, job counseling, adoption assistance, and educational benefits. Absent the PEO, a small business can neither afford nor manage these benefits.
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Who is responsible for the employees' wages and employment taxes?
PEOs assume responsibility and liability for payment of wages and compliance with the rules and regulations governing the reporting and payment of federal and state taxes on wages paid to its employees. PEOs have long established their role as reporting income and handling withholding, FICA and FUTA. In 2002, the IRS issued guidance confirming the ability of PEOs to offer qualified retirement benefits.
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Who is responsible for state unemployment taxes?
As the employer for employment tax and employee benefits, PEOs assume responsibility and liability for payment of state unemployment taxes, and most states recognize the PEO as the responsible entity. In those states that require the PEO to report unemployment tax liability under its clients' account numbers, the PEO can still manage this responsibility.
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Who is responsible for employment laws and regulations?
s employers, both the client and the PEO have compliance obligations. However, PEOs provide worksite employees with coverage under many employment laws and regulations, including federal, state, and local discrimination laws, Title VII of the 1964 Civil Rights Act, Age Discrimination in Employment Act, ADA, FMLA, HIPAA, Equal Pay Act, and COBRA. In many cases, these laws would not apply to workers at small businesses without the PEO relationship, since many statutes have exemptions based upon the number of workers in a work force. Once included in the PEO's workforce, the workers are protected by these laws.
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Who is responsible for workers' compensation?
Many states recognize the PEO as the employer of worksite employees for purposes of providing workers' compensation coverage.
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Does a PEO arrangement impact a collective bargaining agreement?
No. PEOs work equally well in union and non-union worksites. The National Labor Relations Board (NLRB) recognizes that in co-employment relationships, worksite employees are appropriately included in the client employer's collective bargaining unit. Where a collective bargaining agreement exists, PEOs fully abide by the agreement's terms. PEOs endorse the rights of employees to organize, or not organize, under state and federal laws.
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Do PEOs need to be licensed to provide insurance benefits to their workers?
Like other employers, a PEO may sponsor employee benefit plans for its worksite employees. Such benefits may be mandated by law, such as workers' compensation and unemployment benefits. Or they may be voluntary benefits that will help attract and retain quality employees, such as health, life, dental and disability insurance. PEOs as employers may sponsor or acquire programs for their employees. As such, PEOs are consumers of insurance and procure these benefits from licensed insurance agents and authorized insurers.
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Why is it important a PEO have audited financial statements?
A number of state PEO licensing and registration laws require audited financial statements. In addition, the PEO industry best professional performance practices recommend audited financial statements in order to enhance internal controls and accuracy of financial information. While independent audits cannot prevent fraud or financial failure, they provide management with an independent review of and opinion that the financial statements of the entity are accurate, complete and fairly presented according to generally accepted accounting principles (GAAP).
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Is a PEO’s financial statement publicly available?
Similar to their business clients, most PEOs are private entities that do not have public financial statements. Nonetheless, clients are advised to check a PEO’s references, reputation, and financial background. Ask if the PEO has audited financial statements, obtain credit references, and conduct due diligence. In states where required, make certain that the PEO is duly licensed or registered. Many PEOs provide clients an independent CPA’s attestation regarding the PEO’s audited financial statements and payment of taxes and benefit plans.
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