An increasing number of businesses are turning to PEOs for Human Resources management. Below are some common questions and their answers about PEOs and how they work.
How does a PEO arrangement work?
Once you contract with America’s Back Office®, we become the co-employer of your worksite employees. America’s Back Office® shares and allocates responsibilities and liabilities with you, such as employment law compliance, but we assume much of the responsibility and liability for the business of employment, such as risk management, human resource management, and payroll and employee tax compliance. You continue to be solely responsible for management of product development and production, business operations, marketing, sales, and service. As a co-employer, we will 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 employer or co-employer 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.
Do the business owners lose control of their businesses?
No. You retain ownership of the company and control over its operations. As co-employers, America’s Back Office® and you, as our client, will contractually share or allocate employer responsibilities and liabilities. America’s Back Office® will generally only assume responsibilities and liabilities associated with a “general” employer for purposes of administration, payroll, taxes and benefits. You will continue to have responsibility for worksite safety and compliance. We will be responsible for payroll and employment taxes, and will maintain employee records. Because America’s Back Office® also may be responsible for workers’ compensation, we also focus on and improve safety and compliance. In general, we will focus on employment-related issues and you will be responsible for actual business operations.
What’s the difference between America’s Back Office and employee leasing?
America’s Back Office® does not supply workers to worksites. We supply services and benefits to a small business client and its existing workforce. America’s Back Office® enters into a co-employment arrangement typically involving all existing worksite employees in a long-term relationship, sponsor benefit plans for the workers, and provide human resources services to the worksite employer. America’s Back Office® provides access to health insurance, retirement savings plans, and other critical employee benefits for the worksite employees of a small business client. If a PEO relationship is terminated, the workers’ co-employment arrangement with the PEO ceases, but they will continue as employees of the client.
By comparison, a leasing or staffing service supplies new workers, usually on a temporary or project-specific basis. These leased employees return to the staffing service for reassignment after completion of their work with the client company. Some define employee leasing as temporary employment arrangement where one or more workers selected by the leasing or staffing entity are assigned to a customer for a fixed period of time or for a specific project. Upon termination of the staffing or leasing company arrangement, the worker has no continuing employment relationship with the client.
What’s the difference between temporary staffing services and America’s Back Office?
Like a leasing situation, a temporary staffing service recruits and hires employees and assigns them to clients to support or supplement the client’s workforce in special work situations, such as employee absences, temporary skill shortages, or seasonal workloads. These workers are traditionally only a small portion of the client’s workforce. America’s Back Office® does not supply workers to worksites. We co-employ existing permanent workforces and provide services and benefits to both the worksite employer and the employees.
How does America’s Back Office help their clients control costs and grow their bottom line?
Our economy of scale enables each client company to lower employment costs and increase their business’s bottom line. A client can maintain a simple in-house HR infrastructure or none at all by relying on America’s Back Office®. You can also reduce hiring overhead. Our professional team can provide critical assistance with employer compliance, which helps protect you against liability. In many cases, you can pay a small up-front cost for a significant technology and service infrastructure or platform provided by America’s Back Office®. In addition, we save you time by handling routine and/or redundant tasks, leaving you free to focus on your company’s core competency and grow your bottom line.
Do workers receive comprehensive benefits?
Frequently, a PEO arrangement is the only way a small businesses employee can get Fortune 500–quality employee benefits like health insurance, dental and vision care, life insurance, retirement saving plans, job counseling, adoption assistance, and educational benefits. Without a PEO, a small business can neither afford nor manage these benefits.
Who is responsible for the employees’ wages and employment taxes?
America’s Back Office® assumes 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. In 2002, the IRS issued guidance confirming the ability of PEOs to offer qualified retirement benefits.
Who is responsible for state unemployment taxes?
As the employer for employment tax and employee benefits purposes, America’s Back Office® assumes 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 for you.
Who is responsible for employment laws and regulations?
As co-employers, both the client and America’s Back Office® have compliance obligations. However, America’s Back Office® provides 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, 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 work force.
Who is responsible for workers’ compensation?
Many states recognize America’s Back Office® as the employer of worksite employees for purposes of providing workers’ compensation coverage
Do PEOs need to be licensed to provide insurance benefits to their workers?
No. Like other employers, a PEO may sponsor employee benefit plans for its worksite employees. Such benefits may be mandated by law, such as workers’ compensation and unemployment benefits, or they may be voluntary benefits that will help attract and retain quality employees, such as health, life, dental and disability insurance. PEOs as co-employers may sponsor or acquire programs for their employees. As such, PEOs are consumers of insurance and procure these benefits from licensed insurance agents and authorized insurers.