Employee leasing is often confused with the services offered by PEOs, and you might sometimes hear the two terms used interchangeably. However, employee leasing and PEO services are not the same thing.
According to the National Association of Professional Employer Organizations (NAPEO), the confusion exists because, historically, it was common to use employee leasing terms to describe the services provided by early PEOs. PEOs have since evolved, however, and there are now many differences between employee leasing companies and PEOs.
What’s the main difference between the two? While an employee leasing company supplies businesses with workers, a PEO does not. Instead, a PEO provides employee-related services, such as payroll and benefits. And unlike employee leasing, when your contract with a PEO ends, your employees remain your employees.
Services Offered by PEOs
When a business enters into a contractual arrangement with a PEO, it’s basically outsourcing its administrative HR tasks.
For example, a PEO’s services typically include:
- Handling payroll functions, including remitting employee wages and withholdings and issuing W-2 forms
- Administering employee benefits
- Dealing with employment taxes, including collecting taxes and reporting
- Taking care of other HR-related regulatory and compliance issues
Some PEOs offer expanded HR services as well, such as employee training, recruitment and performance management.
You Retain Control Over Your Employees
While a PEO will take over the administrative HR functions for your business, you continue to retain control over all other parts of your business. This means you’ll still be in charge of hiring and termination decisions, and other employee management issues such as salary, raises and bonuses.
How the PEO Relationship Works
Unlike an arrangement with an employee leasing company, when you enter into a contractual relationship with a PEO, the PEO is able to take on regulatory and compliance tasks such as employment taxes because it becomes the employer of record for your employees.
You do not stop being your employees’ employer either, however. Instead, your employees have two employers. This type of arrangement is called co-employment, and it’s what enables the PEO to take over your administrative HR tasks so you can devote your time to the rest of your business.
Employee Leasing vs. Co-Employment
Employee leasing shouldn’t be confused with co-employment, as they are very different. As mentioned previously, leased employees under an employee leasing arrangement are employees of the employee leasing company. Once the arrangement ends, these employees remain the leasing company’s employees.
When you enter into a contract with a PEO, you’re entering into a co-employment arrangement. Although the PEO becomes a co-employer of your employees during the term of the arrangement, once the contract ends, they do not retain this co-employer status. You, however, continue to be your employees’ employer.
With employee leasing, then, the employee leasing company provides you with workers for the term of your contract with it, but with co-employment, the PEO provides you with HR-related services rather than employees.
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