PEO Buyer's Guide

Staff leasing basics

The ideal staff leasing arrangement benefits both your company and your employees. Your business spends less time administering HR functions. PEO services can help reduce company costs and they assume liability. Your employees receive expanded and improved benefits and services.

Staff leasing services provide four core competencies for your business:

1. Safety and risk management: This is the bread and butter of the PEO industry - they assume liability if somebody gets injured on the job or accuses a co-worker of harassment. PEO services ensure compliance with all employment laws and OSHA regulations and assure there's no discrimination of age, sex, or race in the workplace. Also, since the IRS considers a PEO the employer of record for your workers, they are liable for all related payments.

2. Payroll processing and taxes: The PEO vendor distributes paychecks, processes direct deposits, withholds payroll taxes and wage garnishments, sends out year-end tax statements, and oversees any required audits. All payroll taxes and potential liabilities are also paid by the PEO service.

3. Benefits administration: PEO vendors can procure competitive rates for a variety of employee benefits including health and dental insurance, short-term and long-term disability, life insurance, 401(k) plans, COBRA, and unemployment insurance. They also handle all the paperwork associated with managing these benefits. You can also consider Administrative Services Only (ASO) - a third party administrator that manages health benefits and processes claims for businesses with self-funded health plans.

4. HR management: A PEO vendor works with you to ensure your compliance with federal and state labor regulations. They also apply their HR expertise to help you create detailed employee handbooks and training documentation; provide updated labor law posters; and oversee personnel development. PEO services also help in the recruitment process by placing advertisements for open jobs, prescreening candidates, and conducting background checks and drug screenings.

Who uses staff leasing?
PEO services offer staff leasing for companies of any size and in a range of industries from law firms and Internet businesses to manufacturing and medical offices. The typical PEO service customer has 15-20 worksite employees with little to no HR experience. PEO vendors offer these smaller companies the cost savings and comprehensive benefits that are typically reserved for larger companies.

For larger companies with in-house HR staff, PEO vendors remove some of the administrative burden from HR staff. A PEO vendor can also help you cut expenses: hiring a PEO service costs significantly less than a full time HR staffer. Companies in high-risk industries like construction can also find cost savings with PEOs since they share a benefits pool with lower-risk industries.

It's worth noting that the staff leasing industry has unfairly suffered from a bad reputation. When PEOs began 20 years ago, there were many companies that illegally obtained workers compensation benefits, abused state insurance and tax law privileges, and neglected to file payroll taxes. Even though state and federal agencies and industry organizations such as the National Association of PEO (NAPEO) have cracked down on these poor practices, the stigma has endured.

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