What Is a Professional Employment Organization (PEO)?

A PEO is an organization that provides human resources, compliance, and consulting to companies. It is a service provider that works alongside employers to provide HR services abroad. PEOs are different from Employers of Record (EORs).

Organizations use PEOs to outsource HR tasks, primarily for payroll processing and meeting tax obligations. 

Additional duties employers assign to a PEO include:

• Recruiting and hiring
• Onboarding
• Administering employee benefits, like health insurance, unemployment insurance and workers’ compensation
• Candidate screening
• Auditing
• Medical leave
• Offboarding 
• Issuing severance pay
• Compliance assistance

When an organization works with a PEO, they enter a co-employment relationship. As co-employers, both the PEO and organization share employer responsibilities and liabilities. The allocation of responsibilities is outlined in a PEO client service agreement.

Both the client organization and PEO have a responsibility to maintain compliance. However, PEOs assume the majority of responsibilities and liabilities, such as taxes, risk management, and payroll processing. 

PEOs do not replace an organization’s HR department. Rather, it’s a collaborative effort between HR and the PEO. The goal of a PEO is to improve HR functions to guarantee compliance when hiring internationally.

There are many advantages of using a PEO, such as:

• Guarantees compliance when hiring abroad
• Helps with time-consuming administrative tasks
• Makes the international hiring process easier

That being said, there are some possible challenges when working with a PEO that employers may face. For instance:

• PEOs do not take full legal responsibility for compliance issues that could arise.
• PEOs do not help draft compliant employment contracts.
• PEOs do not provide legal guidance when internationally expanding.

When looking to hire abroad, book a demo with Borderless to figure out if a PEO or EOR is best for you.