PEO and Staffing – Completely Different Models

Businesses today need help managing increasingly complex employee related matters, including employee relations, health benefits, workers’ compensation, payroll, payroll tax compliance, and unemployment insurance claims. The pandemic alone has allowed the PEO to add additional value with clients by keeping them informed of the most up to date State and Federal laws and employer requirements, assisting with PPP loans and holistically being a trusted advisor to help manage through the crisis.  According to the NCCI i one of the white papers available on this site, PEO client companies have a 50% better chance of not failing as those not using a PEO.  Client companies contract with a PEO to assume these responsibilities not common to them and provide expertise in human resources management. This allows the PEO client to concentrate on the operational and revenue-producing side of its operations, versus all of the federal regulations and mandates of being “the employer”.

A PEO provides integrated services to effectively manage critical human resource responsibilities and employer risks for clients. A PEO delivers these services establishing and maintaining an employer relationship with the employees at the client’s worksite and contractually assuming certain employer rights, responsibilities, and risk. When evaluating the employer role of either the PEO or the client, the facts and circumstances of each coemployer obligation should be examined separately, because neither party alone is responsible for performing all of the obligations of employment. Each party will be solely responsible for certain obligations of employment, while both parties will share responsibility for other obligations. These roles and responsibilities are spelled out in the client service agreement (“CSA”).  If the CSA does not use the word coemployment, it is more than likely not a PEO, but something else. 

When the facts and circumstances of a PEO and staffing arrangements are examined appropriately, look for some very basic principles to tell the two apart:

  1. PEO has two employers, the PEO and the client company; staffing arrangements have one employer, the staffing company, whom places their employees on the job-site of a third employer (client).
  2. Coemployment is a legal agreement that requires no transfer of employees, yet triggered by contractual arrangement. A staffing company transfers employees of some number to another employer for a margin.
  3. PEO covers all of the employees of a client company that are on payroll. A staffing company only covers the employees on payroll being “staffed” in another employer location.
  4. PEO arrangements are rich in benefits to the coemployees, including major medical, disability and 401k insurance. Staffing employees are usually part-time (< 30 hours) and only offered ancillary (AFLAC) type benefits (if any).
  5. PEO’s provide other lines of insurance to help protects its clients such as employment practices liability and cyber liability insurance. Staffing companies only protect the ir employees.
  6. PEO’s provide guidance in many areas of importance to include regulatory compliance, tax, pandemic protection and human resources, that it is not the value proposition a staffing company usually offers.

In conclusion, each model is a fixture of American business and brings a unique value proposition; PEO and staffing. They are just different and should not be confused.