Professional Employer Organizations (PEOs) are a great option for companies looking to hire internationally without opening a local subsidiary. PEOs hire workers on behalf of their clients, handling local payroll, HR, and compliance, so that their clients can focus on managing their team’s day to day.
If you’re new to PEOs, you may be wondering who the actual “employer” in the PEO employer relationship is. While PEOs become the employer of record of your employees, you have total control over their work and make all the decisions when it comes to compensation, promotions, and even terminations.
In this blog, we will outline the relationship between you, your team, and a PEO from a practical and legal standpoint.
What Is A PEO?
A PEO is a third-party organization that manages payroll, human resources, and compliance services. They may offer a range of additional services including benefits, expense administration and recruiting. PEOs that deliver employee leasing services hire your workers, onboard them, and deliver ongoing payroll and compliance services. They ensure that all employer obligations, including taxes and employment law compliance, are taken care of. Because PEOs hire your workers and then lease them back to you, you can hire internationally without opening a new local subsidiary.
Our blog, What Is a PEO, goes into more detail about all of the services that PEOs offer.
Who Is the Employer?
Who is the employer in a PEO employer relationship? That depends on how you define “employer.”
PEOs that deliver employee leasing services are the legal employer of record for your employees. They hire your worker, or workers, and onboard them into their payroll. As the employer of record, they are responsible for all core employer obligations including delivering timely and accurate payroll and making tax deductions on behalf of their employees. They pay employer payroll taxes, ensure that vacation and statutory holidays are handle compliantly, and provide advice on disciplinary and severance compliance. In short, PEOs take on the responsibilities that would typically be handled by your internal HR and payroll departments.
While PEOs handle all the behind-the-scenes details, in practical terms, you act as the employer of your team. You maintain total control of when and how they perform their duties, without involvement from the PEO. You handle their training and development, provide their work tools, and fully define their jobs. Compensation, bonuses, promotions, discipline, and termination all remain in your control; you simply direct the PEO to execute on your behalf. And most importantly, your internal policies, from intellectual property, to attendance, to leaves can all be applied to workers hired through a PEO. On a day-to-day basis, the PEO’s role in the employer-employee relationship should be invisible.
The duties of an “employer” are effectively split between you and the PEO, with the PEO taking care of things behind the scenes. Some PEOs have a completely hands-off relationship with their clients and their teams, while others offer a more managed solution, providing day-to-day HR support. Regardless of the service offering, the PEO is the legal employer, while you remain the employer in every other sense. Most employees notice little difference between being directly employed or being employed through a PEO. For them, the PEO is just the payroll department, while you are their real employer.
This distinction may become clearer when contrasted with the staffing industry. PEOs specialize in facilitating long-term employment arrangements where workers become a real part of your team. They can receive benefits, participate in your training and development initiatives, and are part of your company’s future. Most clients come to PEOs with a candidate or group of candidates in mind, and later rely on the PEO’s recruiting services to grow their teams. Whether you do all your recruiting in house, or look to a PEO to assist, you are not obligated to their talent pipeline; PEOs don’t control who you hire, or when.
In the staffing industry, workers are hired first by an agency and then placed in a series of temporary client jobs. These workers are contractors who have no guarantees of continued employment at the client or the agency. While clients direct their day to day, they can’t easily bonus top workers, change their compensation, or develop them for other roles. At the end of their contract, workers return to the agency for another placement.
While employees hired through a PEO enjoy the agency’s customer service and HR support, their loyalty is to their employer: you!
Work With A PEO Today
Good PEOs support you in creating a great employee experience, without muddying the issue of who the employer is. At Canadian Payroll Services our certified payroll practitioners and HR account managers work with you to ensure that your team is hired compliantly, onboarded smoothly, and payrolled without errors or interruptions.
Who is in control of the employees in a PEO arrangement, will always be clear when you work with Canadian Payroll Services. Contact us today!