Prospective clients often express confusion about some of the terminology used in the human resource outsourcing industry. A common question is what is the difference between a PEO and an employee leasing firm? Similarly, what is the difference between co-employment and employee leasing?
The term PEO refers to a Professional Employment Organization. A PEO provides a comprehensive suite of human resource service to small and mid-sized clients by establishing a co-employer relationship with the client and contractually assuming certain employer responsibilities and liabilities. By combining thousands of clients, a PEO obtains an economy of scale in the procurement and management of HR technology, professional services and employee benefits. The PEO passes these savings on to its clients who can then provide their employees with outstanding HR services at an affordable price. And since the PEO is handling most of the tedious HR functions, clients are able to focus on the more productive aspects of running their business.
The term employee leasing was used in the late 80s and early 90s, predominately in Florida since that is the state where the PEO industry developed. However, employee leasing was supplanted by co-employment since that term more accurately describes the relationship.
Co-employment is the term that describes the relationship between a PEO and the client. The PEO and the client share employer responsibilities and the PEO contracts specifically define the activities for which the PEO is legally responsible and those activities for which the client is responsible. The client is often referred to as the operational or on-site employer. Some clients think that they can shift all employer responsibilities to the PEO but this is never the case. For example, clients will always have to maintain safe working conditions. However, shirking responsibility is never a reason to work with a PEO. Rather clients should recognize that a PEO provides the tools and resources to efficiently manage critical HR functions and enable clients to improve their focus on creating value for customers.
Read on to learn how to maintain control while utilizing employee leasing or other PEO services.