Glossary
Professional employer organization (PEO)
A firm that co-employs your staff and runs payroll, taxes, benefits and workers' comp under its own accounts for a per-employee fee or share of payroll.
Also called: PEO, employee leasing, co-employment, staff leasing
A professional employer organization enters a co-employment relationship with a client business. The PEO acts as employer of record for payroll tax and benefits administration, while the client keeps day-to-day control of the work. In practice the PEO runs payroll, files employment taxes under its own accounts, offers group health and retirement benefits pooled across its clients, and covers worksite employees under its workers' compensation master policy. Fees are usually a flat amount per employee per month or a percentage of payroll.
The insurance consequences matter. Under a master policy, the client's own loss history and experience modification rate may give way to the PEO's, so you gain pooled buying power but lose the benefit of your own safety record. Contracts that require you to carry comp may ask for an alternate employer endorsement, WC 00 03 01, or a certificate naming you. The PEO does not provide your general liability, property or auto coverage.
The IRS runs a certified PEO (CPEO) program under Internal Revenue Code section 7705, in which a CPEO is treated as the employer for federal employment tax purposes. Whatever the PEO's status, vet it: a PEO that fails to remit payroll taxes or premiums can leave the client exposed, so check state licensing, the workers' comp carrier's rating and the PEO's financial strength before you sign. The guide on PEOs and workers' comp covers co-employment in detail, and third-party administrator describes a different outsourcing model.
Last reviewed October 10, 2026