What is a PEO?
An introduction to the PEO model and its benefits for small and medium-sized businesses
AUGUST 2009
The term “PEO” stands for Professional Employer Organization. PEOs provide small-medium size companies with outsourced human resource services, specifically employment and HR management services. PEOs are not staffing companies.
Traditionally, the PEO model manages functions such as payroll, employer tax compliance, employee benefits, workers compensation, and government compliance, but those services have steadily expanded to include optional services such as talent acquisition, employee training, and performance management.
The website of the National Association of Professional Employer Organizations, NAPEO (www.napeo.org), explains that the PEO model brings value via:
- Relief from the burden of employment administration.
- A wide range of human capital strategy and guidance services offered via a team of experienced professionals.
- Improved employment practices, compliance, and risk management to reduce employer-related liability.
- Access to a comprehensive employee benefits package, allowing smaller companies to be competitive in a tight labor market.
- Assistance to improve productivity and profitability.
The PEO Model's Unique Selling Point: HR Isn’t Your Main Business
The reason for the existence of PEOs and the primary selling point for their business model is this: as an entrepreneur, you did not enter into business to become a human resources manager. You have no interest in contending with payroll twice a month, negotiating benefits for your employees, or worrying about how to comply with a litany of government regulations. You entered into business in order to sell a product or provide a service, and generate revenue doing what you do best.
But HR is a necessity when you have employees. And what could be better than taking a piece of your business – which although a necessity, is also a distraction – off your plate, and making it somebody else’s problem?
