PEO (professional employer organization)

Definition

A payroll firm that becomes a co-employer of record for your staff.

Why It Matters

A great many small businesses run payroll, benefits and workers comp through one of these, and the agreement almost never survives a sale, so the buyer chooses between signing their own and standing all three up from nothing. The second is more work than a first-time owner expects and it lands in the same weeks as everything else. The other half is the workers comp rating, which the arrangement can pool: leaving one resets a good experience modifier or exposes a bad one that the pooled rate was hiding. Find out which entity is actually named on the comp policy before the add-backs are priced.

In numbers: At an administrative fee of 3% of gross payroll, a business paying $900,000 in wages is carrying $27,000 a year for the arrangement, which is a live add-back question when the agreement will not survive the sale.