A professional employer organization (PEO) is a firm that provides a service under which an employer can outsource employee management tasks, such as employee benefits, payroll and workers’ compensation, recruiting, risk/safety management, and training and development. The PEO does this by hiring a client company’s employees, thus becoming their employer of record for tax purposes and insurance purposes. This practice is known as joint employment or co-employment.
A PEO is an entity that contractually assumes various employer rights and human resources responsibilities through the undertaking of an “employer relationship” with workers either assigned to or hired by its clients (employers). In short, the PEO and the employer/client share an employment relationship that allows the PEO to handle and manage employee-related matters such as payroll, benefits, tax matters and, in many cases, workers’ compensation programs, thus allowing the employer to concentrate on the operation and revenue producing aspects of its business. This relationship has become so commonplace that various states actually recognize PEOs and their clients as “co-employers.”
Workers’ compensation law is governed by statutes in every state. Specific laws vary with each jurisdiction, but key features are consistent. An employee is automatically entitled to receive certain benefits when he or she suffers an occupational disease or accidental personal injury arising out of and in the course of employment.