A Fresh Look at PEOs

California Employment Training Panel (ETP) recognizes the value a PEO brings to small business and is reviewing policy on funding ETP programs with PEO’s and there clients under a c0-employment relationship.

 Employment Training Panel is considering funding employers that contract with a Professional Employer Organization (PEO) to perform employment-related services. Following a presentation by members of the PEO community at its January meeting, the Panel recognized that it is increasingly common for small and mid-sized employers to retain PEOs for payroll, Human Resources, and other administrative services.

The PEO representatives explained to the Panel that the contracts between employers and PEOs identify shared risks and responsibilities, and create a legally valid “co-employment” recognized by the courts. In general, PEOs charge services fees, but the client companies still make the hiring decisions and set out the salary and benefits for each employee. PEO services may range from processing personnel documents to negotiating for insurance coverage options. The PEO handles paperwork, while client companies are still in charge of the day-to-day business operations.

The Panel also heard from Christine Cobb, Director of Development at Sparkhill, LLC, in written comments. Sparkhill is a small production company within the entertainment industry, and contracts for payroll and related administrative services with a PEO. In the past, Sparkhill was considered ineligible to participate in ETP-funded training under a Multiple Employer Contract, due to questions about eligibility stemming from its co-employment relationship. In a letter to the Panel, Ms. Cobb stated that “although we contract out our payroll services, we are still paying payroll and other taxes to the state and should be able to take advantage of ETP as a result . . .”

Speaking to this issue, Chairman Barry Broad observed that “employers using the administrative services of a PEO should not be prohibited on that basis alone from applying for ETP funding.” He asked ETP staff to prepare guidelines for Panel’s consideration in March. The guidelines will address employer eligibility and performance standards for a pilot program to fund training in this area. The guidelines will clearly distinguish the co-employment model from temporary agency employment.

The Panel has no plans to revise its long-standing policy against contracting with temporary agencies for training employees of client companies due to concerns about job security, wage progression, and other employment issues.

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