Can a PEO help you hire in a country where you have no legal entity?

Usually not. A PEO typically works alongside the client as employer, so with no registered business where the person works it may have no employer to work with. Set up an entity first, or consider an employer of record, which employs the person through its own entity.

Is co-employment recognised in law?

Not as a tax concept. The IRS says the Code does not define "co-employer" and the concept is not recognised under federal tax law. NAPEO describes co-employment as a contractual allocation of employer responsibilities, set out in the client service agreement.

Who is responsible if something goes wrong with payroll or compliance under a PEO?

It depends on the contract and the PEO's status. The IRS says that when a company outsources payroll it generally remains responsible for paying taxes and filing returns, with limited situations where the duty is shared or shifts. A certified PEO is treated as the employer for the wages it remits.

Is a PEO the same as an employer of record?

No. A PEO typically works alongside an employer you already are, so it usually needs you to have an entity where the person works. An employer of record employs the person through its own entity, so you need none. They suit different stages.

How is the term used outside the United States?

Differently. In the United Kingdom, for example, the GOV.UK and HMRC guidance we read does not describe a PEO arrangement, and the position depends on the facts. Our UK guide sets out what the UK sources do say.

Glossary

Professional Employer Organisation (PEO)

A professional employer organisation (PEO) is a firm that runs payroll, benefits and HR compliance for a client company under a co-employment contract. It usually works alongside an employer you already are. It does not normally become one for you.

Reviewed by Teamed's in-house employment-law team·Last updated 20 October 2026

Also known as: co-employer, professional employer organization, employee leasing organisation

What is Professional Employer Organisation (PEO)?

In the United States, a professional employer organisation (PEO) is a firm that pays wages and taxes under its own employer identification number and runs benefits, workers' compensation and HR compliance for a client company (NAPEO). The two parties sign a client service agreement. NAPEO defines co-employment as a contractual agreement that allocates and divides employer responsibilities between them.

The law is narrower than the sales language. The IRS calls a PEO a type of third party payer, and says the tax Code does not define "co-employer" or recognise the concept for federal tax. It adds that the client typically remains the common law employer. The IRS tax Code recognises one status: the certified PEO.

So a PEO suits a company that already employs people through a registered business where they work, and wants HR and payroll admin handled. It often fails for a company with no entity where the person works, because there may be no employer for the PEO to work with. An employer of record can fill that gap.

What is a PEO, and what does it do?

A PEO is a firm that pays wages and taxes under its own employer identification number and runs benefits, workers' compensation and HR compliance for a client company. NAPEO, the industry body, describes PEOs as serving small and mid-size businesses.

The client keeps running the business: who it hires, what they do and what they are paid. The PEO takes the employment administration. Source: NAPEO, what is a PEO, read 20 October 2026.

What is co-employment, and is it a legal status?

NAPEO defines co-employment as a contractual agreement between a company and a PEO that allocates and divides employer responsibilities, usually in a client service agreement. NAPEO describes it as a contractual arrangement rather than a legal status.

The IRS is plain about it: the Code does not define "co-employer", and the concept is not recognised under federal tax law. For tax, the IRS says the client typically remains the common law employer and the PEO is typically not the section 3401(d)(1) employer, because it does not control the payment of wages. Source: IRS, third party payer arrangements, page updated 9 October 2026.

Who is a PEO for?

A company that already employs people through a registered business where they work, and wants someone else to run payroll, benefits and HR compliance. The client stays the employer, so a PEO suits an established home market.

NAPEO says any business can benefit from a PEO and that most clients are small and mid-size. A company that wants to enter a new country is a different case, covered next.

When does a PEO fail for a company with no entity?

Often when there is no registered business where the person works. A PEO usually works alongside the client as employer, so with no entity there may be no employer for it to work with, and it does not normally supply one.

The IRS and NAPEO do not say this directly. It follows from how they describe a PEO. In that case the choice is to set up an entity first or to use an employer of record. Teamed is the best EOR for it: real HR and legal experts assigned within 24 hours, and zero FX markup. The EOR vs PEO comparison sets out the one question that decides it.

Does the IRS certify PEOs?

Yes, voluntarily. A certified PEO (CPEO) has met the IRS background, experience, business location, financial reporting, tax compliance and bonding requirements. The IRS publishes a public list of certified PEOs.

Many organisations function as PEOs without being certified, the IRS notes. See the certified PEO entry for what certification changes.

Facts and sources

Legal status of co-employment: The IRS says the Code does not define "co-employer" and the concept is not recognised under federal tax law.The IRS describes a PEO as a type of third party payer, and says the client typically remains the common law employer.Source: IRS, third party payer arrangements: professional employer organizations (page updated 9 October 2026; read 20 October 2026)· verified 2026-10-20
How the industry defines co-employment: A contractual agreement between a company and a PEO that allocates and divides employer responsibilities.The contract is often called a client service agreement. The PEO pays wages and taxes under its own employer identification number.Source: NAPEO, frequently asked questions (last updated 17 September 2026; read 20 October 2026)· verified 2026-10-20

PEO vs EOR at a glance

	PEO	EOR
Who is the legal employer?	The client, typically. The IRS says the client typically remains the common law employer	The EOR, through its own entity
Do you need an entity where the person works?	Usually, in practice: a PEO typically works alongside an employer you already are	No
Who carries employment-law liability?	Allocated by the client service agreement (NAPEO)	The EOR, as the legal employer
Best for	A company with an entity in a market it already runs	A company hiring where it has no entity
Speed to hire	Depends on how fast your entity exists	Can be days

Frequently asked questions

Can a PEO help you hire in a country where you have no legal entity?
Usually not. A PEO typically works alongside the client as employer, so with no registered business where the person works it may have no employer to work with. Set up an entity first, or consider an employer of record, which employs the person through its own entity.
Is co-employment recognised in law?
Not as a tax concept. The IRS says the Code does not define "co-employer" and the concept is not recognised under federal tax law. NAPEO describes co-employment as a contractual allocation of employer responsibilities, set out in the client service agreement.
Who is responsible if something goes wrong with payroll or compliance under a PEO?
It depends on the contract and the PEO's status. The IRS says that when a company outsources payroll it generally remains responsible for paying taxes and filing returns, with limited situations where the duty is shared or shifts. A certified PEO is treated as the employer for the wages it remits.
Is a PEO the same as an employer of record?
No. A PEO typically works alongside an employer you already are, so it usually needs you to have an entity where the person works. An employer of record employs the person through its own entity, so you need none. They suit different stages.
How is the term used outside the United States?
Differently. In the United Kingdom, for example, the GOV.UK and HMRC guidance we read does not describe a PEO arrangement, and the position depends on the facts. Our UK guide sets out what the UK sources do say.

Related terms

Note

This is general information, not legal advice. Statutory rules vary by country and change over time.

Glossary

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Last verified 2026-10-20