Although older statutes governing PEOs still use the leasing terminology, PEOs are in fact based upon the co-employment of an existing workforce. Today, the major distinction is that a leasing or staffing service supplies new workers on a temporary or project specific basis. These leased employees return to the staffing service for reassignment after completion of their work at the client. Some would define employee leasing as a supplemental, temporary employment arrangement where one or more workers are assigned to a customer for a fixed period of time, often for a specific project. This concept creates little long-term equity or investment between the worker and customer (much like leasing a car for two years and knowing that you are using it for a specific need but not building any long-term equity).

A PEO or co-employment arrangement, however, involves all or a significant number of the client's existing worksite employees in a long-term, non-project related, employment relationship. The PEO assumes employer responsibility for employment tax, benefit plans, and other human resource purposes. Through the use of a PEO relationship, client companies make a long-term investment in their workers, because in most cases, the PEO provides access to health insurance, retirement savings plans, and other critical employee benefits for their worksite employees. In the event a PEO relationship is terminated, the co-employees will cease to work for the PEO but will continue as employees of the client.