The entire idea behind Professional Employer Organization (PEO) services is the sharing of employer liability through joint employment (often referred to as co-employment in the industry). For business utilizing a PEO, joint employment is the desired outcome, not a thing to be avoided.

For anyone versed in employment law, this statement seems counterintuitive. However, the PEO model has one additional, extremely critical, factor that turns the entire situation on its ear and creates a product that many businesses, particularly smaller ones, can find useful.

That additional factor is the contract that exists between the PEO and the client company. The contract explicitly outlines which party is responsible for which duties. The contract also spells out who, exactly, is liable for what type of adverse judgment. If an employee of a client company then sues, the employee can legally go after both the PEO and the client because both are considered employers. Judgment, if any, is rendered against both PEO and client, and that ends the employment lawsuit.

However, the existence of the contract between the PEO and the client takes the situation a step further and details whether or not the client or the PEO have recourse to each other for the loss. That recourse is governed by contract law as opposed to employment law. If the service contract is properly developed, the financial risk of being an employer can be substantially reduced, resulting in a benefit to the client (provided the client has not acted against the PEOs advice). In other words, a PEO contract takes much of employment liability out of the courtroom and instead places it on the contract negotiation table.