PEO responsibilities: what a PEO does and what stays with you

How co-employment divides the work

In a PEO relationship, your business and the PEO share employer responsibilities under a client service agreement. The PEO takes on administrative and financial functions it can perform at scale, while you keep the operational control that comes from directing the work. Some states regulate PEOs and set rules about how responsibilities are allocated, and federal tax liability depends partly on whether the PEO is IRS-certified; see our certified PEO guide.

See how EZTime works for your industry, from time tracking to shift scheduling.

Payroll services

• Processing payroll on your schedule from the hours and pay data you submit.
• Withholding and depositing federal, state and local income taxes, Social Security and Medicare.
• Filing quarterly and annual employment tax returns, usually under the PEO’s tax ID.
• Issuing W-2s at year end.
• Handling garnishments and wage orders.
• Providing pay stubs and payroll reports.

What the PEO cannot do is know how many hours your employees actually worked. That data comes from you.

HR services

• Employee handbook templates and policy guidance.
• Help with job descriptions, offer letters and onboarding paperwork.
• Advice on discipline, terminations, leave and accommodations.
• Required workplace posters and notices.
• Unemployment claim responses.
• Training resources, often including harassment prevention training.

Benefits administration

• Access to group health, dental, vision, life and disability plans.
• Enrollment, changes and terminations of coverage.
• Carrier billing and employee questions.
• Retirement plan administration through a multiple employer or pooled plan.
• Often COBRA administration and benefits notices.

See our guides to PEO health insurance and PEO retirement plans.

Workers’ compensation and risk

• Providing coverage through the PEO’s program or coordinating your policy.
• Certificates of insurance.
• Claims intake and coordination with the carrier.
• Safety resources and sometimes site visits.

More detail in PEO workers’ compensation.

What stays with your business

Multi-state responsibilities

Hiring in a new state adds registrations, tax accounts, new hire reporting, state-specific posters and sometimes paid leave or scheduling rules. Many PEOs handle registrations and filings, but you still need to tell them before the first employee starts in a new state and follow that state’s rules on breaks, overtime and final pay. Ask your PEO for a checklist of what they need from you each time you add a state, and how long setup takes, so a new hire is not paid late because accounts were not ready.

Responsibilities during termination

• You decide on the termination and communicate it, often with PEO guidance.
• You confirm the final hours worked and any unused PTO owed under your policy and state law.
• The PEO processes the final paycheck, but state deadlines for final pay vary and can be as short as the last day of work.
• The PEO typically handles benefits termination and COBRA notices.
• You collect company property and remove system access.

Gray areas to clarify

• Who updates the handbook when a state law changes?
• Who responds to a wage claim or Department of Labor inquiry?
• Who handles state registrations when you hire in a new state?
• Who pays penalties if a filing is late because of the PEO’s error, and who pays if it was because of your late data?
• Who is responsible for local tax and paid leave rules?
• Who maintains personnel files, and where?

Reviewing the relationship each year

Responsibilities drift. New managers join, the business enters new states and the PEO changes its service model. Once a year, walk through the responsibility matrix with your PEO, confirm who handles each item today and note anything that fell through the cracks, such as a missed local tax registration or an outdated handbook policy. Use that review to decide whether the PEO still fits.

Writing it into the agreement

Your client service agreement should list each responsibility, who holds it, deadlines for data you must provide and how errors are handled. Ask for a responsibility matrix if the contract language is vague. Pay special attention to indemnification clauses, termination terms and what happens to records if you leave. Have an attorney review the agreement before signing, especially if you operate in several states.

Your payroll data routine

1. Employees clock in and out, with breaks recorded where required.
2. Managers review and approve timecards before the cutoff, documenting any corrections.
3. Approved hours, overtime, PTO and job codes are exported in the PEO’s format.
4. Someone checks the payroll preview against approved hours before it is finalized.
5. Any discrepancies are corrected and noted for the next period.

A short example (fictional)

A retail business with 50 employees assumes its PEO handles everything about pay. When a former employee files an overtime claim, it turns out managers had been editing timecards without notes. The PEO had paid correctly based on the hours it received, so the issue stays with the business. The company adds documented corrections and manager approvals to its time process and asks the PEO for a written responsibility matrix.

Where EZTime fits

EZTime is not a PEO and does not process payroll. It handles the part that stays with you: accurate hours. Employees clock in by mobile, web, kiosk or NFC; managers get labor rule alerts and break alerts, approve time and fix mistakes through timecard corrections with an audit trail, and export reports in PDF and Excel for the PEO.

Frequently asked questions

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