What is Co-Employment ?


Co-employment is a contractual arrangement where an employer and a PEO share specific employment responsibilities and obligations for workers. In this model, while the company retains control over its core business operations and functions, the PEO assumes responsibility for HR-related tasks like payroll, benefits, and compliance with labor laws. This distribution of tasks significantly reduces administrative burdens, allowing businesses to focus on more critical aspects of their operations and less on HR complexities.

The Benefits of Co-Employment

  • Access to Advanced HR Technology

PEOs equipped with advanced technology and experienced advisors can significantly aid businesses in developing smarter growth strategies. They are adept at handling workforce issues and keeping up with regulatory changes, thus guiding businesses in managing various aspects effectively.

  • Human Resources Planning and Strategy

PEOs assist companies in creating impactful HR strategies, suggesting policies to foster growth and improve workforce efficiency. This includes implementing leadership programs, providing educational materials, and shaping HR policies through effective onboarding practices.

  • Premium Quality Benefits

Through co-employment, businesses gain access to high-quality benefits typically available to larger corporations. These include cost-efficient health insurance plans and additional benefits like retirement plans and education reimbursement, making them more attractive to employees.

  • Efficient Payroll Management

PEOs streamline payroll processes, handling employee compensation, paycheck distribution, and accurate salary reporting. They also manage income and payroll tax compliance, reducing administrative errors and freeing companies to concentrate on their primary business activities.

  • Expertise in Regulatory Compliance

PEOs' knowledge in regulatory compliance is invaluable, as they help businesses navigate HR rules and avoid fines. This includes managing compliance in areas like taxes, policies, and handling unemployment and workers' compensation claims.

Potential Risks with Co-Employment

Despite its advantages, co-employment can present certain risks, such as a loss of control over HR processes, potential compliance issues, and confusion among employees regarding their "real" employer. Contractual disputes and shared legal liabilities are also concerns. However, with careful planning and management, these risks can be mitigated.

Avoiding Co-Employment Risks

To minimize potential risks, businesses should engage in due diligence when entering into a co-employment relationship. This includes:

  • Legal Expertise: Involving legal experts to create and review contracts, clarifying responsibilities for both parties.
  • Clear Communication: Ensuring that employees understand their employment terms and the nature of the co-employment arrangement.
  • Regulatory Awareness: Staying updated on co-employment rules and discussing classifications with staffing agencies.
  • Contractual Clarity: Emphasizing indemnification language in contracts to clarify responsibility for claims.

Co-Employment vs. Employment Leasing and Joint Employment

It's important to differentiate co-employment from employment leasing and joint employment. While co-employment involves sharing responsibilities for benefits, payroll, and compliance, employment leasing typically sees a staffing agency become the legal employer, managing administrative tasks. On the other hand, joint employment involves both the business and the co-employer sharing supervision and control over work details.

Embracing Global Co-Employment

Co-employment is particularly beneficial for businesses looking to expand globally without the burden of setting up separate entities in different countries. By partnering with a global PEO, businesses can onboard talent from a vast pool, manage payroll, and ensure compliance with local employment laws in multiple countries. This approach enables businesses to expand their international workforce while remaining fully compliant with local regulations, thus fostering a more diverse and global business environment.