PEO (Professional Employer Organization)
A co-employer that runs payroll, files taxes, and provides benefits as the employer of record for tax purposes.
A Professional Employer Organization (PEO) is a co-employer that runs payroll, files payroll taxes, provides employee benefits, and acts as the employer of record for tax purposes — even though the client business retains operational control of the workforce (hiring, firing, scheduling, performance management). The PEO and the client business are joint employers under the FLSA and most state wage statutes.
The PEO model lets small businesses access enterprise-grade benefits (health insurance, 401(k), workers' comp) at the PEO's pooled rate, which is usually meaningfully cheaper than what a small business could buy independently. The PEO also handles the IRS filings (Form 941, Form 940, W-2) under its own EIN, which simplifies the small business's payroll tax compliance burden to roughly zero.
The trade-off is cost — PEO fees typically run 4%–10% of payroll, on top of the underlying salary cost — and lock-in, since switching PEOs typically resets the employees' retirement plans, benefits accruals, and W-2 reporting boundaries. The major U.S. PEOs include TriNet, Justworks, Insperity, Paychex PEO, ADP TotalSource, and several regional providers.