I have worked in the Professional Employer Organization (PEO) business in a variety of roles in the past 20 year: General Counsel; Senior Vice President of Human Resources and Compliance; Director of Human Resources; Chief Operating Office; Director of National Accounts; and Professional Sales Consultant.
20 Years in PEO: In April 1997, I left the U.S. Department of Justice to enter an exciting new world – Professional Employer Organization (PEO) also known, at that time, as employee leasing. I have never been disappointed. A study by Arthur Andersen (a former Big 5 accounting firm) predicted that the PEO would consolidate into 4 or 5 large PEOs, with several regional or much smaller companies servicing the business market.
In 1997, the world of PEO looked very different from today, both in the players but also in the approach to interacting with clients.
Despite the growth of the industry in Texas and Florida, the birth of the PEO industry came about in California. Initially, the industry was used by doctors to maximize their retirement savings by using “employee leasing” to separate themselves from their employees. While the IRS forced the industry out of this model, a few companies still exist using this model – an old employee leasing model if you will.
Twenty years ago the big players were Staff Leasing; Vincam; Administaff; Employee Soltions (ESI); Simplified Employment Services (SES); Team America; TriNet and Employer’s Resource Management. Only the last two continue to operate under their same names 20 years later. Vincam was purchased by ADP. Staff Leasing became Gevity and was ultimately purchased by TriNet. Administaff became Insperity. The remaining three went out of business.
Twenty years ago the biggest issue facing the industry was whether the PEO was a “single employer” or a “co-employer.” Some PEOs of the 90’s made the claim that they were the sole employer and this allowed for advantageous treatment of 401k savings for owners. Again, the IRS came along and ruled that a PEO must perform discrimination testing on a client-by-client basis. But the view of PEO’s is that it is a co-employment relationship.
In recent years, the IRS has worked with the PEO industry to establish standards. However, when I am meeting with business owners, I still hear the phrase “employee leasing.” I think, “Well what does that mean to you, because over the past 20 years that phrase and the whole industry has changed.”