Simple Answers to Frequently Asked Questions

Frequently Asked Questions
PEO FAQ's

  • What is a Professional Employer Organization (PEO)?

    Professional Employer Organizations (PEO) enable clients to cost-effectively outsource the management of human resources, employee benefits, payroll and workers' compensation. PEO clients focus on their core competencies to maintain and grow their bottom line.

  • Who uses a PEO?

    Any business can find value in a PEO relationship. An average client of MKES is a business with a minimum of 2 worksite employees. Increasingly, larger businesses also are finding value in a PEO arrangement, because PEOs offer robust web-based HR technologies and expertise in HR management. We also partner with companies that have up to 500 or more employees and work in conjunction with their existing human resources department. 

  • How does a PEO arrangement work?

    Once a client company contracts with a PEO, the PEO will then co-employ the client's worksite employees. In the arrangement among a PEO, a worksite employee and a client company, there exists a co-employment relationship in which both the PEO and client company have an employment relationship with the worker. The PEO and client company share and allocate responsibilities. The PEO assumes much of the responsibility and liability for the business of employment, such as risk management, human resource management, and payroll and employee tax compliance. The client retains responsibility for and manages product development and production, business operations, marketing, sales, and service. The PEO and the client will share certain responsibilities for employment law compliance. As a co-employer, the PEO will often provide a complete human resource and benefit package for worksite employees.

  • Are PEOs recognized as employers at the state and federal levels?

    Yes. PEOs operate in all 50 states. Many states provide some form of specific licensing, registration, or regulation for PEOs. These states statutorily recognize PEOs as the coemployer of worksite employees for many purposes, including workers' compensation and state unemployment insurance  taxes. The IRS has accepted the right of a PEO to withhold and remit federal income and unemployment taxes for worksite employees. The IRS has promulgated specific guidance confirming the authority of PEOs to provide retirement benefits to workers.

  • Why would a business use a PEO?

    Business owners want to focus their time and energy on the "creating revenue" and not on the transactional duties of being an employer. As businesses grow, most owners do not have the necessary human resource insurance and employee benefit programs to meet the demands of being an employer. PEOs give small-group markes access to many benefits and employment amenities they would not have otherwise.

  • Do the business owners lose control of their businesses?

    No. The client retains ownership of the company and control over its operations. As co-employers, the PEO and client will contractually share or allocate employer responsibilities and liabilities. The PEO will generally only assume responsibilities and liabilities associated with a "general" employer for purposes of administration, payroll, taxes and benefits. The client will continue to have responsibility for worksite safety and compliance. The PEO will be responsible for payroll and employment taxes, will maintain employee records and reserves a right to hire and fire. Because the PEO also may be responsible for workers' compensation, many PEOs also focus on and improve safety and compliance. In general terms, the PEO will focus on employment related-issues and the client will be responsible for the actual business operations.

  • Do workers receive comprehensive benefits?

    Frequently, a PEO arrangement is the only opportunity for a worker of many small businesses to receive Fortune 500 quality employee benefits like health insurance, dental and vision care, life insurance, retirement saving plans, job counseling, adoption assistance, and educational benefits. Absent the PEO, a small business can neither afford nor manage these benefits.

  • Who is responsible for the employees' wages and employment taxes?

    PEOs assume responsibility and liability for payment of wages and compliance with the rules and regulations governing the reporting and payment of federal and state taxes on wages paid to its employees. PEOs have long established their role as reporting income and handling withholding, FICA and FUTA. 

  • Who is responsible for state unemployment taxes?

    As the employer for employment tax and employee benefits, PEOs assume responsibility and liability for payment of state unemployment taxes, and most states recognize the PEO as the responsible entity. In those states that require the PEO to report unemployment tax liability under its clients' account numbers, the PEO can still manage this responsibility.

  • Who is responsible for employment laws and regulations?

    As employers, both the client and the PEO have compliance obligations. However, PEOs provide worksite employees with coverage under many employment laws and regulations, including federal, state, and local discrimination laws, Title VII of the 1964 Civil Rights Act, Age Discrimination in Employment Act, ADA, FMLA, HIPAA, Equal Pay Act, and COBRA. In many cases, these laws would not apply to workers at small businesses without the PEO relationship, since many statutes have exemptions based upon the number of workers in a workforce. Once included in the PEO's workforce, the workers are protected by these laws.

  • Who is responsible for workers' compensation?

    Many states recognize the PEO as the employer of worksite employees for purposes of providing workers' compensation coverage.

  • Does a PEO arrangement impact a collective bargaining agreement?

    No. PEOs work equally well in union and non-union worksites. The National Labor Relations Board (NLRB) recognizes that in co-employment relationships, worksite employees are appropriately included in the client employer's collective bargaining unit. Where a collective bargaining agreement exists, PEOs fully abide by the agreement's terms. PEOs endorse the rights of employees to organize, or not organize, under state and federal laws.

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