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Employee Leasing and Professional Employer Organizations (PEOs)

Employee Leasing

Employee leasing involves organizations primarily engaged in providing human resources and human resource management services to businesses. Establishments in this industry operate in a co-employment relationship with client businesses or organizations and specialize in performing a wide range of human resource and personnel management duties, such as payroll accounting, payroll tax return preparation, benefits administration, recruiting, and managing labor relations.

Employee leasing establishments typically acquire and lease back some or all of the employees of their clients and serve as the employer of the leased employees for payroll, benefits, and related purposes. Employee leasing establishments exercise varying degrees of decision-making relating to their human resource or personnel management role, but do not have management accountability for the work of their clients' operations with regard to strategic planning, output, or profitability. Professional employer organizations (PEOs) and establishments providing labor or staff leasing services are included in this industry.


Professional employer organizations (PEOs) enable clients to outsource the management of human resources, employee benefits, payroll and workers' compensation. Companies contract with a PEO to assume these responsibilities and provide expertise in human resources management. A PEO delivers these services by establishing and maintaining an employer relationship with the employees at the client's worksite and by contractually assuming certain employer rights, responsibilities, and risk.

As co-employers with their client companies, PEOs contractually assume substantial employer rights, responsibilities, and risk through the establishment and maintenance of an employer relationship with the workers assigned to its clients. Some of these responsibilities include:

  • Employee benefits administration.
  • Payment of wages and employment taxes of the employee out of its own accounts.
  • Reporting, collecting and depositing employment taxes with state and federal authorities.

PEOs and State Registration and Licensing Acts

PEOs operate throughout the country. Individual states may have comprehensive registration and licensing acts related to the PEO industry. In addition, state unemployment codes, workers’ compensation acts, and other statutes may have a direct impact on how PEOs operate in a particular state.

For more information on state requirements related to PEOs, please contact either your state’s insurance or labor department. For additional state-related information, please click here.

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