Employer of record in Tennessee: PEO rules, payroll registration and what the client still owns (2026)

As of October 2026, Tennessee requires a professional employer organization (PEO) to register with the Department of Commerce and Insurance under the Tennessee Professional Employer Organization Act, Tenn. Code Ann. §§ 62-43-101 to 62-43-114, and the act covers any business co-employing all or most of a client's workforce whatever it calls itself. Registration lasts two years and needs CPA financial statements and positive working capital, or a bond or security equal to the shortfall plus $100,000. Tennessee has no income tax on wages, so there is no state withholding, but the PEO registers a new unemployment account for each client, the client stays jointly liable for those premiums unless the PEO has posted a $100,000 bond, and the PEO must make sure the worker is covered by workers' compensation.

This page is for a company outside Tennessee, or a staffing firm, deciding whether to employ a Tennessee worker through an EOR or PEO or to register itself. The general differences between an EOR, a PEO and payrolling are in what is an employer of record and payrolling services explained. The full state checklist is in hiring employees in Tennessee, and the 1996 repeal of staffing agency licensing is in staffing agency license in Tennessee.

Tennessee employer of record and PEO rules at a glance

Does Tennessee license PEOs or employer of record companies?

It registers PEOs. Section 62-43-106 says "No person shall provide, advertise or otherwise hold itself out as providing professional employer services in this state unless such person is registered under this chapter." The definition in § 62-43-102 reaches any business providing those services "regardless of the use of the term or conducting business as a 'professional employer organization,' 'PEO,' 'staff leasing company,' 'registered staff leasing company,' 'employee leasing company,' 'administrative employer,' or any other name." Professional employer services means co-employment "in which all or a majority of the employees providing services to a client, a division or work unit of a client are covered employees," in a relationship "intended to be an ongoing relationship rather than a temporary or project specific one."

• Term and renewal. Registration lasts two years. Renewal is due within 180 days after the end of the fiscal year that is the second year of the registration, with updated information and financial statements (§ 62-43-106(a)(4), (d)).
• Financial statements. An audited GAAP statement no older than 13 months with the application, and the latest statement within 180 days after each fiscal year. A PEO with less than $50 million in annualized wages may file statements compiled by an independent CPA instead (§ 62-43-106(b)(8)).
• Working capital. Positive working capital, or a bond, irrevocable letter of credit or securities worth the deficiency plus $100,000, held to secure "all taxes, wages, benefits or other entitlements due to or with respect to covered employees" (§ 62-43-106(c)).
• Quarterly proof. Within 90 days after each quarter, a statement from an independent accountant that "all applicable payroll taxes have been paid on a timely basis" (§ 62-43-106(i)).
• Workers' compensation evidence. The application includes evidence of workers' compensation coverage for covered employees in Tennessee (§ 62-43-106(b)(9)).
• Fees. The act lets the department set fees by rule (§ 62-43-107), and rules made under the former Employee Leasing Act stay in effect unless they conflict (§ 62-43-114). The posted rule 0780-05-08-.07 lists a $250 application fee and a $2,000 license fee and renewal fee for a single company, $4,000 for a group, and $500 for a restricted license. The department's forms page still lists the filings as the "Employee Leasing Licensee Application" and renewal, made through its CORE portal. Confirm the amount before filing.
• Limited registration. A PEO domiciled outside Tennessee and licensed or registered as a PEO in another state can take a two-year limited registration if it has no Tennessee office or direct solicitation and no more than 50 covered employees employed or domiciled in Tennessee; the financial statement and working capital rules do not apply to it (§ 62-43-106(f)).
• Penalties. Orders to comply or cease and desist, administrative penalties of up to $1,000 for each separate violation, and suspension or probation of the registration (§ 62-43-112).

The department must keep a list of registrants "readily available to the public" (§ 62-43-106(g)). Ask any provider for its Tennessee registration number and confirm it with the Department of Commerce and Insurance before you sign.

What if the provider is an employer of record but not a registered PEO?

Ask which category it says it falls in. The act defines "temporary help services" as a business recruiting and hiring its own employees, finding organizations that need them, assigning them to support or supplement those workforces or cover "employee absences, skill shortages or seasonal workloads," and "customarily attempting to reassign its employees" when each assignment ends (§ 62-43-102(17)). That describes a staffing firm placing contractors. It describes less well a worker you found, chose and will direct indefinitely, for whom the provider is the payroll employer and nothing else. If the provider says your arrangement is neither, ask how it reads the "all or a majority ... a division or work unit" test for your account, in writing.

Tennessee has no staffing agency license to fall back on: the personnel services licensing law was repealed in 1996, as explained in staffing agency license in Tennessee. An unregistered provider still has to register as an employer for unemployment insurance.

Who pays Tennessee unemployment tax on an EOR or PEO worker?

A registered PEO "shall be deemed an employer of its covered employees and shall pay state unemployment premiums" (§ 62-43-109(a)). Tennessee's method differs from many states in three ways:

• A new client account, not yours. The PEO applies for an account number for each client with Tennessee covered employees (§ 62-43-109(c)). The Department of Labor and Workforce Development's PEO FAQ says the PEO "will register a new client account for any client that joins your services and not use their own employer account," and that "The employer is responsible for taking care of inactivating their other accounts." If you already have a Tennessee account, close it yourself when the PEO takes over.
• The PEO's rate. Wages are reported under the client account but at "the premium rate based on the aggregate reserve ratio of the professional employer organization" (§ 62-43-109(b), (d)). The PEO does not acquire your experience, and you do not take the PEO's when you leave (§ 62-43-109(e)).
• Joint liability unless bonded. "A client shall be jointly and severally liable with a professional employer organization for state unemployment premiums" on its covered employees unless the PEO has posted a $100,000 corporate surety bond with the department. After three full years of timely payments and a positive reserve account, the bond can drop to no less than $35,000 (§ 62-43-109(f)).

The PEO also tells the department in writing about clients added or dropped during each quarter, and when a client leaves, the PEO closes the client account through e-Services, per the same FAQ.

Who carries workers' compensation in Tennessee?

The Bureau of Workers' Compensation says construction businesses must cover everyone, including owners, and "Other businesses need insurance if there are five or more employees." Under § 62-43-110, a PEO must "ensure that its Tennessee covered employees are covered by workers' compensation insurance," notify the department and its clients within ten days of any notice of cancellation, and notify the department and its carrier when a client relationship ends. The PEO and the client both get "the exclusivity of the remedy" under a workers' compensation policy "that either party has secured." Ask for the certificate naming your worksite, and for written notice terms if coverage lapses, since the ten-day notice is the only warning the act builds in.

Which Tennessee registrations, reports and notices still apply?

• No withholding. The Department of Revenue says "Tennessee has no state income tax on earned income and therefore has no withholding requirements." There is no state withholding account or state W-4 to collect.
• New-hire reporting. "Employers must report their newly hired or rehired employees within 20 days of the date they are hired," per TDLWD.
• Co-employment notice. The PEO gives each covered employee written notice of "the general nature of the relationship" between the PEO and the client (§ 62-43-108(a)(2)).
• E-Verify. Since January 1, 2023, private employers with 35 or more full-time-equivalent employees "under the same FEIN" must use E-Verify, per TDLWD. Ask whose FEIN your hire runs under and who opens the E-Verify case; more is in E-Verify requirements in Tennessee.
• Posters. TDLWD provides the required posters free. Ask how a remote worker receives them.
• Paid leave programs. We found no Tennessee paid family leave or disability insurance program that needs a separate employer registration.

What does the client company still own in Tennessee?

Unless the agreement says otherwise, the client is "solely responsible for directing, supervising, training and controlling the work of the covered employees" and for their acts in its business (§ 62-43-108(b)). In practice:

• Hiring rules. Tennessee has no statewide pay transparency, salary history or private-employer ban-the-box law, per the Tennessee hiring checklist; background checks follow the federal FCRA process and Tennessee background check laws. Remote postings open to other states can pick up their rules (see pay transparency laws by state).
• Interviews and testing. Tennessee is one-party consent for recording (see Tennessee recording consent law for interviews), and its Drug-Free Workplace Program is voluntary (see Tennessee drug testing laws).
• Non-competes. The act does not change restrictive covenants between the client and a covered employee, existing or new, and the PEO takes no liability for them unless it agrees in writing (§ 62-43-105(b)). See Tennessee non-compete law.
• Licensed workers. A covered employee who must be licensed "is deemed solely an employee of the client" for that license, and the client keeps "the sole right of direction and control" of licensed activity (§ 62-43-105(c)).
• Incentives. For state and local tax credits and incentives based on employment, covered employees count as the client's alone, even though the PEO issues the W-2 (§ 62-43-105(d)).
• Co-employment liability. Both businesses can be named in wage or discrimination claims; see joint employer liability for staffing agencies.
• Federal payroll taxes. The IRS says the client "generally remains responsible" for employment taxes unless the PEO is certified; see the IRS's CPEO public listings.

When is registering your own company in Tennessee the better route?

Registering yourself in Tennessee is short: with no income tax withholding, the main steps are an unemployment account in TDLWD's e-Services, new-hire reports and, at five employees (or one in construction), workers' compensation. That route tends to win when you expect several Tennessee hires, already run multi-state payroll, or want to keep your own unemployment experience rating rather than a PEO's. A registered PEO fits a small team whose benefits, payroll and comp you want handled together, provided its bond takes joint unemployment liability off you; a temporary help firm fits a defined assignment.

Questions to ask an employer of record or PEO before signing for Tennessee

1. Are you registered with the Department of Commerce and Insurance, or do you hold a limited registration? Give us the number.
2. If not, do you call yourselves a temporary help service, and how does that fit a worker we chose and will direct indefinitely?
3. Have you posted the $100,000 unemployment surety bond, so that we are not jointly liable for premiums?
4. What is your current Tennessee unemployment premium rate, and do you want us to close our own account?
5. Who is the workers' compensation carrier, and will you send us the certificate and any cancellation notice?
6. Whose FEIN will the hire run under for E-Verify, and who opens the case?
7. Are you an IRS-certified PEO, and who is liable for federal employment taxes if a deposit is missed?
8. Can we move the worker to our own payroll later, and is there a conversion fee?

Employer of record rules in other states: Arkansas, California, Florida, Hawaii, Maryland, Michigan, Minnesota, Mississippi, Nebraska, New York, Oregon, Rhode Island, South Carolina, Texas and Utah.