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​The Small Business Blog

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Can Federal contractors utilize A professional employer organization (peo)?

10/10/2016

10 Comments

 
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One way of determining whether a business is small, for purposes of federal contracting and small business contracting programs, is by looking at the number of employees the business and its affiliates have.  In addition, questions regarding who a business'  employees are come up in the context of compliance with labor and employment laws/regulations.  We are frequently asked whether federal contractors can utilize a Professional Employer Organization (PEO) and if so, employees under a PEO arrangement are considered employees of the business.
In general terms, a PEO partners with a business to provide comprehensive HR outsourcing to help manage a company's human resources, employee benefits, payroll, and regulatory compliance.  A PEO works through a co-employment relationship with the client company and therefore contractually shares certain employer responsibilities with the client company relative to the employees.  Many PEOs have a large client base and will often have thousands of employees on their payroll.  

When a company enters into a PEO relationship with a PEO, the employees will receive their W-2 from the PEO and not the company.  From the Company's perspective and for federal contracting purposes, it can be confusing as to:  (1) whether federal contractors are permitted to enter into a PEO relationship; (2) whether the company reports that they have no employees; and (3) whether the company and the PEO are considered affiliates such that the company would have to report that all of the PEO's employees are their employees.

Based on SBA's regulations, it is clear that federal contractors ARE permitted to enter into PEO relationships and that the employees the federal contractor brings to the relationship are still considered the employees of the contractor.  Thus, for reporting purposes such as on the EEO-1 or VETS-4212, the company would still have to report on those employees that it brought/brings to the PEO relationship.  In addition, SBA regulations make clear that the company and a PEO will not be considered to be affiliates based solely on the PEO agreement; thus, the company would not have report all of the PEO's employees as its own.  

For more information on applicable regulations, please see 13 CFR 121.103 and 13 CFR 121.106.  In addition, if you have questions regarding PEOs and whether this arrangement might be appropriate for your business, please feel free to contact us at info@holomuaconsulting.com.  
10 Comments
Weareseos link
12/7/2021 02:05:34 pm

I truly appreciate your great post!

Reply
Roofing Contractors Mobile Alabama link
12/8/2021 03:22:09 pm

A contract or contract-like instrument for services covered by the Service Contract Act. Thank you for sharing your great post!

Reply
Click here link
1/5/2022 01:46:41 pm

A PEO works through a co-employment relationship with the client company and therefore contractually shares certain employer responsibilities with the client company relative to the employees. Thank you for the beautiful post!

Reply
Kitchen And Bath Remodeling link
1/10/2022 09:03:20 am

A co-employment relationship with the client company and therefore contractually shares certain employer responsibilities with the client company relative to the employees. I’m so thankful for your helpful post!

Reply
Roofing Contractor link
1/11/2022 01:27:36 pm

It is clear that federal contractors ARE permitted to enter into PEO relationships and that the employees the federal contractor brings to the relationship are still considered the employees of the contractor. Thank you for sharing your great post!

Reply
Hvac Contractors link
1/13/2022 03:27:12 am

It is clear that federal contractors ARE permitted to enter into PEO relationships and that the employees the federal contractor brings to the relationship are still considered the employees of the contractor.

Reply
Residential Roofing Companies link
1/13/2022 11:43:52 am

With the client company and therefore contractually shares certain employer responsibilities with the client company relative to the employees. Thank you for taking the time to write a great post!

Reply
Built Up Roofing link
1/15/2022 01:00:44 pm

A PEO is able to do so by hiring a client company's employees, thus becoming their employer of record for tax and insurance purposes.

Reply
Vinyl Fences link
1/16/2022 10:11:18 am

When a company enters into a PEO relationship with a PEO, the employees will receive their W-2 from the PEO and not the company. Thank you for making this such an awesome post!

Reply
appointment management link
8/31/2022 02:45:38 pm

Based on SBA's regulations, it is clear that federal contractors ARE permitted to enter into PEO relationships and that the employees the federal contractor brings to the relationship are still considered the employees of the contractor. I love this blog. I don’t know what I’d do without you and your great info! Thank you so much!

Reply



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