What is the PEO model? The PEO model is where an employer enters into a “co-employment” relationship with a PEO. The PEO accomplishes this through what is called an “employee leasing” agreement. With an employee leasing agreement, the client company agrees to release all workers to be employed by the PEO, who then leases these workers back to the client company, for a fee. This is called a co-employment relationship because the employees remain under the direction and supervision of the client company, however most all of the HR, tax, and insurance obligations for these employees are administered by the PEO. Theoretically, specialization and economies of scale enables the PEO to perform these employer related responsibilities at a cheaper rate than the client company, who specializes in some other service. This business model is designed for the PEO to be able to perform these functions for a cheaper rate than the client company, and extend these savings to the client, creating value. Thus, an effective PEO model is designed to reduce the cost of revenue for their customers, and increase profitability.
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PEO Model | By Mike Smith