PEO Services and Employee Leasing: Decoding the Difference

Jan 30, 2020
| Extensis
The professional employer organization (PEO) industry is growing and small and medium-sized businesses are catching on to the benefits of outsourcing HR. Even so, there are still a lot of misconceptions around PEOs.
One myth we hear over and over again is: A PEO relationship and employee leasing are one and the same.
This confusion is most likely due to the relationship that actually exists between PEOs and their clients, called co-employment. And while many think “employee leasing” is synonymous with “co-employment,” they’re actually very different.

Let’s take a closer look at both employee leasing and co-employment. We’ll discuss how these two concepts differ from one another and explain why PEO partnerships aren’t the same as an employee leasing company.

What is employee leasing?

Also known as a “temporary employment arrangement”, employee leasing is the practice of supplying new workers or contractors to a client, usually on a temporary basis. Often, employee leasing is undertaken for work on a specific project with a clear start and end date.

When a business works with a staffing company, the staffing firm provides resources who perform work at the client’s place of business. Once the project, timeframe, or contract is complete, the workers return to the staffing company, who is their actual employer.

Employee leasing is a popular option for business owners who need new workers for a set time frame and don’t want to worry about the HR administration or regulatory tasks that come with hiring contract or temporary workers.
Employee leasing is most commonly associated with staffing firms, although at times it’s mistakenly attributed to professional employer organizations.

What is co-employment?

The National Association of Professional Employer Organizations (NAPEO) defines co-employment as “the contractual allocation and sharing of certain employer responsibilities between the PEO and the client.” In plain terms, in a co-employment relationship, workers are employed by two different entities: the client and the PEO.

In a co-employment arrangement, the PEO does not supply staff members to their client. All employees are either currently employed by the client or hired by the client in the future. In a co-employment relationship, a PEO assumes certain employer rights, responsibilities, risk and other HR administrative tasks. These PEO services often include:
  • Remitting wages and withholdings of the clients’ employees
  • Issuing W-2s for compensation under the PEO’s Employer Identification Number
  • Reporting, collecting, and depositing employment taxes with local, state, and federal authorities
Meanwhile, the client retains control over the hiring and firing of its employees, and business leaders continue to make the day-to-day operating decisions for their company.

Co-Employment Through a PEO and Employee Leasing are Not the Same

There are plenty of important differences between employee leasing and co-employment. Most notably, co-employment does not result in the PEO providing staff to their clients. This responsibility falls on the client, as do any other staff-related decisions, including hiring new talent after the PEO partnership is established.

Instead of being a leased or temporary worker, employees end up having two employers – the company who hired them AND the professional employer organization. The PEO becomes the company of record for HR, payroll, benefits, employment taxes and other HR-related purposes.
Another common misconception about PEOs is employers lose control of various aspects of their business, including their employees and hiring/firing decisions. In a PEO relationship, business owners retain full control of their business, while the PEO handles the administrative side of human resources.

PEOs Do More Than HR – They Can Help You Grow Your Business

Working with a PEO, especially one designated a Certified Professional Employer Organization (CEPO) with ESAC accreditation, ensures you remain compliant with all HR and employment related laws and regulations. Instead of having to worry about HR management and compliance, a PEO partnership frees you up to focus all your efforts on high-value activities designed to grow your company.
A PEO relationship also provides small businesses with access to enhanced healthcare and employee benefit offerings – important things to new recruits and keeping current staff happy. Even though PEO partnerships allow you to maintain control of your company and hire new employees as you see fit, a PEO can also lend their expertise to help you overcome recruiting challenges, too.
As a small- or medium-size business owner, managing your HR, benefits and recruiting on your own can drain precious time better spent improving your operations or building your customer base. By decoding the difference between PEO services, co-employment and employee leasing, you can begin to see the benefits each set-up may have for your company.
Want to know more about how a PEO can help your business? Contact our HR experts today and let’s discuss the solution that works best for you.