You may have been seeing the acronym “PEO” more and more frequently lately instead of employment or staffing agency, and wondering exactly what it is? The term stands for professional employment organization, which is a company that provides workers in certain fields (typically human resources, employee benefits, payroll administration, and risk management) to contracting businesses via a cooperative association in which traditional employer responsibilities are shared. Through this partnership, a small or medium-sized firm that can’t afford to directly employ additional staff can team with a provider company to obtain those additional workers and thus achieve economies of scale. In doing so, there are some exposures to risk that the provider company takes on. PEO insurance is in order for these firms because it provides protection for the employees that the firm places in the workplace environments of its various client companies.
The roles in co-employment arrangements
Co-employment makes partners of the administrative employer and the worksite employer, with each having specific roles. The professional employment organization is responsible for the following:
- Paying the employee’s wages
Handling a variety of administrative tasks, functions, and paperwork, including that for regulatory and compliance issues
- Providing workers compensation insurance for the client and the employees furnished to the client, and handling any workers compensation claims that may arise which are related to that employee
- Providing a host of other items for the client company or the employee such as unemployment insurance, employment practices liability coverage, health insurance and other types of voluntary insurance coverage, other employee benefits programs and more
The client company is generally responsible for:
- Managing and directing the daily tasks and activities of the employee that the staffing company provides
- Maintaining an accurate count of the hours worked by the contracted employee and reporting the hours to the staffing company in order to process payments
- Providing a safe working environment for the employee that is provided to the client company
- Paying payroll funds to the staffing firm
In this economic environment when companies are not always able to keep all the workers they need on staff continuously, working with a firm that can offer those human resources is gaining popularity. As more companies turn to contract employees, the companies that provide those workers will in turn need to ensure they have PEO insurance to protect them in the course of providing human resources for their clients.