If you’re a business owner, you likely have a lot on your plate—no matter how many employees you have. Not only are you in charge of brainstorming new ideas that align with the big picture of your company, but it’s also up to you to handle the day-to-day tasks that keep things running smoothly.
Professional employer organizations (PEOs) step in for small and medium-sized businesses to handle their administrative tasks. This can include anything from the initial onboarding process for new employees to payroll and workers’ compensation. Partnering with a PEO does have legal implications that are important for business owners to understand. Let’s take a look at the key legal considerations in PEO contracts as well as employer liability and PEO services.
Key Legal Considerations in PEO Contracts
Partnering with a PEO is considered a co-employment relationship. When your business works with a PEO, it’s crucial that you fully understand the contract you sign with them. Your PEO agreement will lay out who is responsible for what within the co-employment relationship.
Typically, a PEO agreement includes a client service agreement, which states exactly what the PEO will provide for your business, the responsibilities of your business within that agreement, and the expected costs. This should also include terms and conditions—both for the PEO to adhere to as well as your business—including the duration of the contract and any renewal conditions.
When entering into a contract with a PEO, it’s imperative that you understand where responsibility lies for things like payroll, taxes, workers’ compensation, and other benefits. What does the PEO need from you each month in order to maintain accuracy?
Employer Liability and PEO Services
Understanding liability within a PEO agreement can feel a little unclear or overwhelming as an employer. As a business owner, you want to feel confident that you are still in control of your company. Who is in charge of hiring and firing? Additionally, what happens if a PEO makes a mistake? Who is financially responsible for potential errors?
First and foremost, as an employer, you should have full control of your company. PEOs help with administrative tasks, but you should not be relinquishing control of your organization to them. Your company will likely remain in charge of daily operations that keep your business running smoothly. A PEO will typically administer pay, take care of taxes and benefits, and handle workers’ compensation claims.
Hiring and firing is left in the control of the client company as well. PEOs often offer recruitment services, however, to help businesses find people who fit well with the company culture and whose skills meet the needs of the organization. With that said, no decision is made to hire new employees without the approval of the client company itself.
Ultimately, your company is responsible for all taxes due to the government, which can feel a bit nerve-racking if you’ve partnered with a PEO. If they do make a mistake and fail to pay on your behalf, you may be held liable. Depending on the situation, however, the IRS may first reach out to the PEO for payment.
Partnering with an experienced PEO can help eliminate the possibility of error and ensure the process runs smoothly. While there are risks if a PEO makes a mistake, for many small and medium-sized businesses, the benefits of working with a PEO far outweigh those risks.
Ensuring Legal Compliance in PEO Agreements
If you enter into a PEO agreement as a business owner, it’s important to understand what’s necessary in order to ensure legal compliance. Does the PEO require specific data from you each month in order to maintain accurate records? Be sure to also familiarize yourself with exit strategies should you want to end your relationship with the PEO. How much notice is required to end your contract without consequences?
Co-employment means shared responsibility between your company and a PEO. When you choose to partner with a PEO, having a legal agreement or contract is crucial for protecting you and your business. If you’re ready to outsource your administrative tasks to an experienced PEO, reach out to our team at PEOPayGo today to get the support you need!
