PEOs do not supply labor to work-sites. PEOs supply services and benefits to a small business client and its existing workforce. PEOs enter into a co-employment arrangement typically involving all of the client’s existing work-site employees in a long-term relationship, and sponsor benefit plans for the workers and provide human resources services to the work-site employer. In most cases, the PEO provides access to health insurance, retirement savings plans, and other critical employee benefits for the work-site employees of a small business client. If a PEO relationship is terminated, the workers’ co-employment arrangement with the PEO ceases, but they will continue as employees of the client.

By comparison, a leasing or staffing service supplies new workers, usually on a temporary or project-specific basis. These leased employees return to the staffing service for reassignment after completion of their work with the client company. Some define employee leasing as temporary employment arrangement where one or more workers selected by the leasing or staffing entity are assigned to a customer frequently for a fixed period of time or for a specific project. . Upon termination of the staffing or leasing company arrangement, the worker has no continuing employment relationship with the client.

Historically, leasing terminology was used to describe what has evolved into PEO relationships. Some older state statutes governing PEOs still use the leasing terminology, contributing to the confusion about PEOs.