Despite the ongoing trend of companies hiring PRofessional Employer Organization (PEO) service providers, misconceptions still abound within the business industry. One misconception that springs up all the time is that: a PEO employee relationship is the same as employee leasing.
Most likely, the confusion stems from the relationship that exists between a PEO and its client, called co-employment. Though many think that employee leasing and co-employment are one and the same; clearly, they are totally different.
To sort out the misunderstanding, let’s examine the difference between employee leasing and co-employment, and why PEOs are not the same as an employee leasing company.
What is Employee Leasing?
Employee leasing is a temporary employment arrangement. It’s the practice of supplying workers or contractors on a temporary basis. Often, this is a project-based practice with definite time frame, a start and end date.
Employee leasing is most often associated with staffing terms, although they get mixed up with to PEOs and HR Outsourcing.
When a company hires staff through a staffing company that uses employee leasing, the staffing firm provides workers to the clients who do the work at the client’s place of business. Once the project, time frame, 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 needs fresh workers for a set time frame. A common strategy is 85% Full Time and 15% Temping is used. A popular choice for employers who do not want to worry about HR administrative tasks and regulatory compliance associated with hiring contractual or temporary workers.
What is Co-Employment?
The National Association of Professional Employer Organizations (NAPEO) states, “The PEO relationship involves a contractual allocation and sharing of certain employer responsibilities between the PEO and the client, as delineated in a contract typically called a client service agreement (CSA).” Essentially, in a co-employment relationship, employees are jointly employed by two different entities – the client and the PEO.
Thus, The PEO does not supply the worker to their client. All employees are either with the client or are future employees hired by the client.
In a co-employment relationship, a PEO assumes certain employer rights, responsibilities, risk, HR administrative tasks and other. These can include:
- Payroll management of the clients’ workers
- Withholding, filing and payment of government mandated benefits
- Reporting, collecting, and depositing employment taxes with local and state 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
We have mentioned the assumption about PEOs that the relationship they have with the client is employee leasing. Upon taking a closer look at the differences between employee leasing and co-employment (which is how PEOs operate), it becomes clear that the assumption is far from the truth.
- The glaring difference is that in co-employment relationship through a PEO, the PEO does not provide staff for their client. This responsibility of hiring new talents falls on the client after the PEO partnership is established.
- Instead of being a contractual or temporary worker, employees end up having two employers- the clients (the company who hired them) AND the professional employer organization. The PEO becomes the company of record/or Employer of Record (EOR) for HR, payroll management, employment compensation and benefits, employment taxes and other HR-related matters.
- Keep in mind that in a PEO relationship, business owners do not lose control of various aspects of their business, including their employees and hiring/firing decisions. This is another wrong assumption about PEOs. The client retains full- control of business while the PEO is an outsourced HR that handles the administrative tasks
The PEO Solution Is for You
Working with a certified PEO ensures business owners that they remain compliant with all HR and employment related laws and regulations. Instead of worrying of HR administrative tasks, the management can focus their efforts on business growth activities.
Health insurance, employee benefit offerings are easily accessible when working with a PEO, thus assisting in recruitment and employee retention. The PEO Partnership allows the client to maintain control and operation; and hire new employees as they see fit.
The misconception that PEO and employee leasing are the same; often, causes business owners and broker to scrap a PEO solution, even though a prosperous partnership is in the horizon. We hope this article clarifies the common confusion surrounding co-employment and employee leasing.
Perhaps the PEO solution is the competitive track that is aligned with your company goals and market entry.