HR & PEO Glossary
Plain-English definitions of every term you’ll hit when evaluating PEO, payroll, benefits, and compliance providers. No acronym soup.
PEO (Professional Employer Organization)
A company that enters into a co-employment relationship with your business. The PEO becomes the employer of record for tax purposes and files payroll taxes under its own EIN. You keep full control of day-to-day operations, hiring, and firing. The PEO handles payroll, benefits administration, workers' comp, and HR compliance.
ASO (Administrative Services Organization)
An outsourcing model where the provider handles payroll, HR, and compliance without co-employment. Your company stays the sole employer of record. You keep your own EIN, your own workers' comp policy, and your own benefits plans. The ASO provides the technology platform and advisory support. Best for companies that want help with administration but don't need co-employment or PEO tax filing.
Co-Employment
The legal arrangement at the heart of a PEO. Two employers share responsibilities for the same workforce: the PEO is the administrative employer (handles payroll taxes, benefits, compliance filings) and your company is the worksite employer (directs day-to-day work, makes hiring and firing decisions). Co-employment does not mean the PEO controls your employees.
HRIS (Human Resource Information System)
Software that stores employee records, manages benefits enrollment, tracks time off, runs reports, and serves as the employee self-service portal. VertiSource HR delivers HRIS through The VertiSource HR Cloud and includes onboarding, document management, PTO tracking, performance reviews, and ACA reporting.
COBRA (Consolidated Omnibus Budget Reconciliation Act)
A federal law that gives employees and their families the right to continue group health benefits after a qualifying event (job loss, reduction in hours, divorce, death). Employers with 20+ employees must offer COBRA continuation coverage for 18–36 months. Administration includes sending timely election notices, tracking premiums, and reporting. Under a PEO, COBRA administration is handled by the PEO.
Section 125 / Cafeteria Plan
An IRS-approved plan that lets employees pay for certain benefits (health insurance premiums, FSA contributions, dependent care) with pre-tax dollars. Reduces taxable income for the employee and reduces payroll taxes for the employer. "Section 125" refers to the section of the Internal Revenue Code that authorizes these plans. Nearly every PEO sets one up automatically.
Experience Modifier (EMR / E-Mod)
A multiplier applied to your workers' compensation premium based on your company's claims history compared to the industry average. An EMR of 1.0 means average. Below 1.0 = fewer claims than average (lower premiums). Above 1.0 = more claims (higher premiums). PEOs actively manage your EMR through safety programs, claims management, and return-to-work protocols. A drop from 1.4 to 0.9 can save tens of thousands annually.
EPLI (Employment Practices Liability Insurance)
Insurance that covers claims made by employees alleging wrongful termination, discrimination, harassment, retaliation, or other employment-related violations. EPLI is separate from general liability and workers' comp. Many PEOs include EPLI as part of their co-employment agreement, which means your business gets coverage without buying a separate policy.
ACA (Affordable Care Act) Compliance
The set of employer obligations under the Affordable Care Act, primarily affecting companies with 50+ full-time equivalent employees (ALEs). Key requirements: offer minimum essential coverage to 95%+ of full-time employees, file Forms 1094-C and 1095-C annually, and track variable-hour employees for eligibility. Penalties for non-compliance (Letter 226-J) can run $2,000–$4,000 per employee. PEOs handle ACA tracking and filing as part of the service.
FMLA (Family and Medical Leave Act)
A federal law requiring employers with 50+ employees to provide up to 12 weeks of unpaid, job-protected leave per year for qualifying reasons (serious health condition, birth/adoption of a child, care for a family member). Employers must maintain health benefits during leave. States like California (CFRA), New York, and others have expanded versions with paid leave components.
W-2 vs 1099 (Employee vs Contractor)
W-2 employee: your company withholds taxes, provides benefits, and controls how work is performed. 1099 contractor: an independent worker who controls their own methods and schedule; you issue a 1099-NEC for payments over $600. Misclassification (treating an employee as a contractor) carries steep penalties from the IRS, DOL, and state agencies. PEOs only handle W-2 employees.
PEPM (Per Employee Per Month)
The standard pricing model for PEO and ASO services. Instead of a percentage of payroll, some PEOs charge a flat dollar amount for each employee on the platform each month. PEPM pricing is more predictable . Your cost doesn't spike when you pay bonuses or overtime. VertiSource HR uses PEPM pricing.
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