A Professional Employer Organization (PEO) is a business that leases employees to other businesses. A PEO manages the paperwork responsibilities associated with having employees. (PEOs) are to pay employee wages, workers' compensation premiums, payroll-related taxes, and employee benefits from their own account without regard to payments by the client. Thus, they become the employer of record. The client company in return pays the PEO employee costs plus an administrative fee. The client company is sometimes termed a coemployer.
The primary question with employee leasing is just whose employees are they? Historically, an employer/employee relationship is identified through the right to control the work of the individual. With leasing employees, the PEO has the right to hire, fire, discipline, and reassign an employee, while the client company maintains enough control so they can run the day to day operations of their business. The rights and authority of the PEO and the client company are defined in the PEO statutes, and are to be defined in the contract between the two parties.
Montana recognizes two options for employee leasing, one of which is a professional employer arrangement and the other is an employee leasing arrangement. The primary difference between the two options is whether the employees are sourced 100% by the PEO or whether the employees are shared between the PEO and the client.
Is employee leasing for you? PEOs claim to be human resource specialists. They make it their business to be knowledgeable about all aspects of employing workers, keeping abreast on all federal and state requirements. PEOs can provide benefits and insurances for less money than a smaller business because of their size. Providing benefits is an advantage employers need today; it assists them in keeping good employees. Another advantage to leasing employees is that business owners and managers can spend their time focusing on their business rather than employee related tasks.
Leasing employees may relieve a business of responsibility associated with employees, but it does not relieve the liability. The companies enter into a relationship where the liability is shared. The type of arrangement the companies enter into could affect the potential liability. Client companies are jointly and severally liable for any employee-related expense that a PEO does not make. Another liability issue a business should consider when thinking of employee leasing is that the business may or may not have exclusive remedy under the workers' compensation laws. This is an issue that would need to be decided in the court system.
PEOs are required to be licensed through the Department of Labor & Industry. The application requests information from the PEO regarding ownership, financial stability, benefits packages provided, workers' compensation and unemployment policies, and copies of the contracts they use. PEOs that are licensed are required to provide proof that all payroll related taxes for the quarter have been paid. An independent CPA prepares this proof.
Businesses that are considering leasing some or their entire workforce from a PEO should at the very least call the department to verify that the PEO is licensed and in good standing. The department also recommends you:
* Check references. Ask for a client list and contact as many as possible for references. * Scrutinize the contract. Read the contract very carefully and be sure you understand exactly what your responsibilities and liabilities are. * Proof of payment. Require that the PEO send you copies of all reports it sends to government agencies and insurance companies to confirm that your leased employees are listed.
