A Brief History of PEOs, or Employee Leasing Companies

Employee leasing -- the early model for professional employer organizations -- in the United States began in the 1940's. In the early 1970's, the concept was popularized by a consultant named Martin Selter, who leased the employees of a doctor's office in Southern California. The Employee Retirement Income Security Act of 1974 (ERISA) contained an exemption for multiple employer welfare arrangements (MEWA), which provided a loophole for employers with leased employees to claim they were exempt from the ERISA requirements. Passage of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) further encouraged employee leasing by providing a tax shelter for employers who contributed a minimum amount to employee plans. More stringent guidelines in the Tax Reform Act of 1986 later eliminated most of the TEFRA incentive, however.

By 1985, there were approximately 275 staff leasing companies in the United States. As of 2007, there were more than 700 PEOs operating in the United States, covering 2-3 million workers. PEOs operate in all fifty U.S. states, Sweden, Germany, the UK, and Russia.