What is a PEO and How does it Work?

Professional Employer Organization (PEO) is a company that partners with another (usually a small business).  This PEO will permit you to access their benefits package for insurance, workers’ comp, and other human resource functions.  That means you have a single source for what you need without hiring additional people and contracting for additional products.

What is a PEO and How does it Work?

what is peo

This is a contractual relationship where the individuals are employees of both your company and the PEO.  The PEO acts as the employer in specified situations, and you act as the employer for work assignments, supervision, hiring, firing, and all the usual activities.

This is not an outsourcing arrangement.  In outsourcing, the individuals are employees of only your company, and the HR company is a contractor working for you.  The HR company has no direct responsibilities for or to the employees.

A PEO is a separate company from yours, but for the purpose of the contract, the individuals are their employees for benefits, including workers’ comp, other insurance, or related HR situations.  Because the PEO is very large, it has access to deep discounts for insurance and other benefits that it can pass on to the employees.


You run your business as usual through this contract, and the PEO assists.

  • Your Responsibilities – You direct and supervise the workers; manage the company; develop and implement job descriptions; arrange all of the organizational and operational duties.
  • The PEO – The responsibilities are defined in the contract you negotiate.  Usually, it includes administrative functions like payroll and employee benefits, but it can also include acting as a representative in other HR matters like disputes and claims for workers’ comp or unemployment in Florida.

As you can tell, this is a collaborative employment plan with you and the PEO, each having specific responsibilities and giving the employee the best work/benefits package possible.  When you work through a temporary employment agency or contracting service, the employees are borrowed or leased by you but are the sole employee of the service or agency.

Pay as You Go

This is a feature for workers’ comp coverage in Florida, where you pay the premiums when you run the payroll.  Under normal circumstances, the premium is based on your estimated annual payroll, and an adjustment is made at the end of the year for over or underpayments.  With the premiums paid for each payroll period, the cost of workers’ comp is spread out over the year and based only on your actual payroll expenses.  This makes it very attractive to small businesses where workers’ comp costs can be steep and company income can fluctuate, especially seasonally.

PEOs and Pay As You Go workers’ comp premiums can benefit small and medium-sized businesses.  As a business owner, they allow you to concentrate on what you do best, running your company.  At the same time, you are relieved of the tedious HR responsibilities.  As a bonus, your employees get an advantageous benefits package, thus allowing you to recruit and retain qualified personnel.

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