Many years ago, I served as President of my local volunteer ambulance squad. While the origins of the agency was a volunteer service 24/7/365, times changed and we began having a paid staff Mondays - Fridays from 7 AM to 7 PM. I effectively became a small business owner overnight. We were fortunate that we had budget to cover the added expenses and were able to provide continuity of emergency medical care to the community without disruption.
We had to run payroll, withhold taxes, deal with Workers Comp insurance, medical benefits, and so forth. This role I had felt like a second full-time job.
I quickly learned that as a business owner, I was responsible for at least the following:
Filing with the state for an Unemployment rate, and saw fluctuations in that due to any claims filed against us
Obtaining Workers Compensation insurance, and saw fluctuations in that due to any claims filed
Procuring health benefits on the open market
Annual and quarterly tax filings
Hiring, Discipline, Reviews, Terminations and other administrative tasks
I can only imaging how this was more complex for other small and midsize businesses.
Enter the Professional Employer Organization (PEO).
PEO as a concept has been around for over 30 years. It is often called co-employment and previously was referred to as "employee leasing," but it's so much more than that. The PEO is a multi-company employer in that they become the legal entity under which the employees of their client companies are hired. As an example, if a PEO called MyPEO has a client called Bob's Ambulance:
The employees of Bob's Ambulance are "operationally employed" by Bob's Ambulance who is responsible for the day-to-day HR tasks (hiring, orientation, reviews, scheduling, etc.).
The employees of Bob's Ambulance are "legally employed" by MyPEO who is responsible for all payroll, taxes, benefits, workers comp, and so forth.
As a PEO grows and has more clients/employees for whom they provide services, the net headcount represent (often called Worksite Employees) is larger. And as such, the PEO has much more buying power and leverage when it comes to procuring health benefits, workers compensation rates, unemployment rates, and so forth.
These savings are passed on to the client who, even at the cost of an Administrative Fee, will typically see a net savings. Not to mention the time savings seen when the payroll, hr, and tax tasks are now undertaken by the PEO, allowing the company's associates to focus on other activities.
The PEO model has seen much growth over the last few years. In fact, it's no longer a business model used by small to midsize businesses; it's often part of the strategy for companies with 1,000 or more employees.
This is a very rudimentary explanation of PEO. There are certainly more dynamics to it, but I hope this overview gave you an understanding of it.
Let me know if you have any questions about PEO.
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