What is the foundation of the PEO model?

• A. The outsourcing-only model
• B. The internal payroll model
• C. The co-employment model
• D. The single-entity model

Answer: (C)

The foundation of the PEO model is a co-employment arrangement. In this setup, the PEO becomes the employer of record for payroll, taxes, benefits, and HR compliance, while the client company retains control over hiring decisions, supervision, and day-to-day work directions. This dual relationship lets the client access professional HR services, tax handling, and scalable benefits without relinquishing control of their business operations. The PEO handles the administrative side of employment, and the client continues to run the business and supervise employees, creating a shared employment structure that underpins how a PEO operates. Other models described—such as outsourcing-only, internal payroll, or a single-entity approach—don’t capture that shared employer responsibility that is central to what a PEO does.