Frequently Asked Questions about PEO Companies

How big does a company have to be to use a PEO?

Usually, more than 5 employees.  Some PEOs will service companies with less than 5 employees depending on their need for benefits, among other things.

Who is the employer in a PEO relationship?

Both the client AND the PEO.  The Client is the managing employer and the PEO is the administrative employer.

What happens if the Client / PEO relationship ends?

The client will take on the entire employer burden for those employees.  That means unemployment taxes start accruing under the Client FEIN number.  Any benefits that were secured under the PEO FEIN will cease to be available and the client will be responsible to replace those benefits for its employees.

When is the best time to start the Client / PEO relationship?

January 1st, but it can make sense at other times, depending on how the PEO setup is handled.  Some clients prefer to start January 1 due to tax implications.  Others prefer to make the change when their benefit plans renewal since rates and plans are usually changing anyway.  It all depends on the primary reason for the change.

What are the benefits to being reported under a PEO’s FEIN number?

Fortune 500 benefits for all size employers.  PEOs also have “skin in the game” with your compliance issues, because everything is reported under their FEIN number.

What if the PEO goes out of business?

The client still has a right to the information and employees that it has co-employed with the PEO. In some states, there can be a risk to the client if the PEO has not paid all of their liabilities. But in most states, if you have paid your invoices timely, then your co employment liabilities terminate when you leave the PEO.

Where can I find a list of reputable PEOs?

Go to www.napeo.org and search the Member Directory.

Will my employees feel like they work for someone else?

No.  If it’s handled professionally, your employees will see an increase in benefits, and an increase in your focus as the details fall off your desk.  A PEO cannot change or govern your internal culture, no matter what the contract says.

Whose name is on the paycheck?

In most cases, both the client and PEO name appears on the paycheck.

Who do my employees call if they have questions on their benefits or payroll taxes?

The PEO.

Do I have to adhere to FMLA if I am with a PEO?

Yes. The PEO will administer the forms, etc., but you are required to comply with FMLA since the PEO generally has more than 50 employees.  However, the hardship rule can sometime be applied to your business.

Can I have my own benefits plan and still use a PEO?

Sometimes.  There are many PEOs that allow this setup, and will still administer your benefits.  Most national firms do not allow this.

What if I already have employment agreements with my employees?

Those agreements stay in effect between the client and the employee.  If there are glaring differences between the agreement and the Policies of the PEO, they may need to be discussed to ensure congruency in the event of a claim.

Whose unemployment tax rate is used?

In most states, The PEO rate is used.