Professional Employer Organization (PEO)

Professional Employer Organization (PEO)
A professional employer organization is a company that assumes all HR functions of
a client company by hiring all of its employees and leasing them back to the company.
This is also called employee leasing. The PEO gains economies of scale by negotiating
for benefits for the employees of several organizations. This can be a very cost efficient
way for a small- to medium-sized organization to provide benefits equal to those of
larger organizations. The company pays the PEO a percentage of the gross wages. PEOs
will account for most of the increase in money spent for HRM outsourcing.46 Much of
the attractiveness of using a PEO to a small- or medium-size business comes from the
ability to attract stronger candidates with the benefits they could not have afforded
without the bargaining power of the PEO. Another advantage is having the expertise of
the PEO to handle confusing government regulation requirements.
Shared Services
Outsourcing isn’t the best option for every company. Another way to make HR functions
more cost-efficient and responsive to the organizational strategy is to create
shared services centers. The shared services centers are useful to organizations that
may have several divisions or locations that could consolidate some HR functions such
as payroll into one central location while retaining other functions such as training in
HR Trends and Opportunities 47
outsourcing
Contracting with a company to handle
one or more HR functions.
professional employer
organization
Assumes all HR functions of a client
company by hiring all of its employees
and leasing them back to the company.
shared services
Sharing HRM activities among geographically
dispersed divisions.