What’s the Difference Between Employee Leasing and PEO Companies?


PEOs, known as professional employer organizations usage, are increasing with small businesses, but there are still some misconceptions. Many believe that employee leasing and co-employment, which a PEO uses, are the same thing, but they are different.

is a closer look at both employee leasing and co-employment and how they differ from each other.

What is Employee Leasing?

Employee leasing, known as a temporary employment arrangement, is the practice of supplying new workers or contractors to a client, generally temporarily. Typically, employee leasing is for work on specific projects that have a start and end dates.  Employee leasing is often associated with staffing firms. If a business works with a staffing company that uses employee leasing, the staffing firm will provide employers to their clients who do the work at the client’s place of business. As soon as the project, timeframe, or contract is complete, and the worker will return to the staffing company, who is their employer.

Leasing employees is a popular option for business owners who need workers for a set time frame, and don’t want to be concerned with the HR administrative and regulatory tasks that are associate with hiring contract and temporary workers.

What is a PEO Company?

A PEO company uses co-employment, which is defined by the National Association of Professional Employer Organization (NAPEO) as “the contractual allocation and sharing of certain employer responsibilities between the PEO and the client.” This means in a co-employment agreement, and two different employers will employ employees. A PEO company does not supply workers to their clients. Employees are currently clients of the PEO company. With a co-employment relationship, a PEO company will assume certain employer rights, responsibilities, risks, and other HR administrative tasks, such as remitting wages and withholding of the clients workers, reporting, collecting, and depositing employment taxes with local, state, and federal governments.

Co-Employment Through a PEO and Employee Leasing

The most significant difference is that co-employment relationships through a PEO company do not provide staff for their clients. That responsibility falls on the client, which includes hiring new talent after the partnership with the PEO company is established. In a co-employment arrangement, employees end up having two employers, the business that hired them, and the PEO.  The PEO company becomes the company of record for HR, payroll, employment taxes, benefits, and any other HR-related purposes.


Working with a PEO company ensures small business owners remain compliant with all aspects of HR and employment-related regulations and laws. This allows business owners to focus their efforts on other activities that can grow their business, while the HR aspects are looked after by a PEO company.

Working with a PEO company offers small businesses with access to improved health insurance and employee benefit plans that can assist with recruiting and employee retention for a small business. Partnerships with a PEO company allow small business owners to maintain control of their company, and hiring of new employees.

Final Thoughts

It’s a big misconception that a PEO and employee leasing is the same thing, which can cause small business owners to dismiss PEO solutions. PEO companies do not supply labor to worksites. A PEO company provides services and benefits to businesses and their employees. By comparison, employee leasing supplies new workers, typically temporary, for specific projects that have a timeline. Use a PEO company for your business HR and administration needs.


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