Introduction to PEOs

PEO stands for ‘professional employer organization.’ A very basic definition is that a PEO takes care of all the administrative details of having employees for other companies, reducing the cost and aggravation to their clients, who are typically small businesses. The typical PEO handles payroll, benefits, workers’ compensation and other human resources needs for their client companies. Many PEOs also are responsible for hiring, making them a valuable resource if you are in the middle of a job hunt.

Contacting PEOs about employment

If you are looking for employment, looking at PEOs can pay off. Many have regular job openings, and operate as staffing agencies. However, the majority of PEOs handle specific staffing needs – one PEO may hire only IT employees, while another might focus on general clerical needs. You will need to sort out those companies that handle your profession. You can find a list of local PEOs through the National Association of Professional Employer Organizations. http://www.napeo.org/find/members.cfm Members of the NAPEO are typically more reliable and less likely to have problems.

The problems with working for PEOs

There have been a number of cases against various PEOs, accusing them of circumventing laws meant to protect workers. PEOs are often established to take advantage of loopholes in labor laws, with the intention of reducing costs. Some PEOs will go to great lengths to reduce costs further, including techniques such as creating new business entities and transfer all business to them, in order to reduce worker’s compensation or unemployment rates.

As well as abuses by legitimate employers, there are many concerns about fraudulent PEOs. A typical scam involves a PEO charging client companies for tax and insurance payments, but instead of paying that money out to the appropriate recipients, the scammer keeps it.

If you choose to work with a PEO, keep close tabs on your relationship with the company. You can check your Social Security statement online http://ssa.gov to make sure that the correct payments are being made. You can also check if a PEO is accredited by the industry’s independent regulatory agency, the Employers Service Assurance Corporation through their website. http://www.esacorp.org/AccreditedPEOsByState.aspx

In 2004, the federal government enacted legislation aimed at stopping some of the wider abuses of PEOs, with the expectation that state governments would do the same by 2007. However, there are still many loopholes that allow the exploitation of workers by PEOs.

Not all PEOs act unethically, but it is in your best interest to avoid those that are. This typically requires research, and simply walking away from any PEO that has any suspicious activities.

The benefits of PEOs for employees

According to the NAPEO, their clients have an average of 17 on-site employees. Because of these low numbers, if these small companies did not use a PEO, their employees would have no protection under the Consolidated Omnibus Budget Reconciliation Act (COBRA), the Age Discrimination in Employment Act (ADA) or the federal Family and Medical Leave Act (FMLA). It would also be likely that they would have minimal health and retirement benefits from their employers.