The concept of co-employment can be confusing. However, in today’s scenario when 40% of workers are having contractual jobs, it is essential that employers develop a basic understanding of the concept of co-employment. Worry not, as we’re here with:
- An in-depth guide on co-employment
- The components of co-employment
And everything else you need to know.
So, without further ado, let’s get started.
What is Co-employment?
The definition of co-employment is often confused with joint employment or employee leasing but it’s not the same. Co-employment is a contract between a Professional Employer Organization (PEO) and its client – another business entity – to share certain responsibilities related to employment. It’s useful for reducing a few employer-related liabilities and costs.
How does Co-employment Work?
If you think that co-employment leads to losing control over business or ownership, you should get some clarity on this.
In a co-employment contract between a PEO and employer, the co-employer takes care of their employees and the regular operations. On the other hand, the PEO looks after the HR-related tasks such as employee benefits, regulatory compliance, payroll, etc. Both the PEO and the client organization share employee rights and responsibilities.
Co-employment Arrangement - A Detailed Breakdown
In a co-employment arrangement, both the PEO and the employer share the roles and responsibilities. The PEO and co-employer relationship only work well when they take up the responsibilities together and team up to fulfill them.
Let’s give you a clear breakdown of the employer and PEO responsibility in co-employment.
In a co-employment arrangement, the co-employer focuses on managing the daily activities and the core functions. These include:
- Everyday responsibilities, roles, and tasks of the co-employed employee
- Performance reviews and appraisals of the co-employed hire
- Overall decisions of employment and business-related to the co-employed employee
We would like to mention here that the co-employer is not needed to stress over the HR activities. This is where the PEO comes into the picture.
The PEO takes care of the state or country-specific payroll legalities related to the employees.PEO(s) generally hold expertise in finance, HR, tax, and legal functions.
PEO shares the responsibilities and liabilities of the co-employer. It helps in managing co-employment risks. Let’s take a look at the PEO’s responsibilities.
In a co-employment arrangement, a PEO focuses on administrative activities such as:
- Organization and administration of employee compensation, benefits, and insurances.
- Arrangement and administration of employment taxes with the proper national and state agencies
- Playing the role of an official employer for tax records and insurance purposes
- Administration of group benefits, employee termination, workers’ compensation, and unemployment claims, if relevant.
You should note that the employees hired do not work for the PEO. Nor are they outsourced (even for temporary work) to the PEO at any point in the PEO co-employer relationship. The daily responsibilities of the employees remain with the organization they had applied to for employment.
What is not Co-Employment?
Co-employment can cause bouts of confusion. There is misinformation surrounding its name which often makes co-employment arrangement quite a vague concept. Several businesses are yet to clear their doubts on the agreement, and the responsibilities of the PEO and the co-employer.
To be clear about co-employment, consider the services and functions that are not included in a co-employment contract. These are completely other types of business arrangements.
To clear the air further on co-employment vs joint employment, employment leasing, etc. here’s their breakdown.
Employee leasing is used for short-term contracts which have an official start and end date. In this business arrangement, the workers from staffing agencies perform the project-specific tasks on the client’s site. Once the project is completed, the workers return to their staffing agencies.
Co-employment and employee leasing are different in several ways.
- Generally, co-employment does not function for a set period
- PEO services in co-employment do not include staffing selections for the co-employer
- Unlike employee leasing where the staffing agency is the only legal employer, in co-employment both the PEO and co-employer share responsibilities of the employee.
Co-employment vs joint employment is an age-old misconception. They are often used as synonyms. In both co-employment and joint employment, the responsibilities of an employee or a group of employees are shared.
The difference between the two lies in the input level each arrangement has on the employees’ daily operations. In co-employment, only the co-employer is responsible for looking over the day-to-day work of the hires. But in joint employment, both the PEO and the co-employer can direct the employee activities - daily workload, employee hours, or even the control over broader business operations. For example, in a joint employment contract, the PEO can offer suggestions to the co-employer on employee workload or hiring additional staff. Also, the PEO can assist in the hiring process.
Talent scouts and hiring agencies
In co-employment arrangements, a PEO does not hire employees for co-employers. Nor do they have access to large hiring networks or a ready database of talent pools.
Typically, PEO(s) are not a part of the recruiting negotiations. Once you have hired an employee, the PEO steps up to manage the administrative tasks like the ones related to payroll, taxes, employee benefits, compensation, etc.
So, the primary difference between co-employment functions and hiring agencies lies in recruitment participation. While talent scouts and hiring agencies automatically participate in the recruitment and hiring process, PEOs in co-employment do not.
Professional development instructors
Co-employment arrangements set the functions and responsibilities of the co-employer and the PEO. There are certain contractual boundaries for both which limits the possibilities of double-dipping.
Both PEOs and co-employers share the legal accountability of the hires. Hence, both parties should have a clear distribution of responsibilities. For example, PEOs have the responsibility of administrative tasks. They are not responsible for any professional development instructions like educational courses for employees, certifications, or clearances. Though the PEO acts as the legal employer in records, they do not look into employee career progression.
So, the role of professional development instructors and a PEO in a co-employment arrangement is different. Hence, they should not be used interchangeably.
Benefits of a Co-employment Relationship
We hope that the concept of co-employment is pretty clear now. So, let’s move on to the benefits of co-employment.
You might be thinking as to what we can get from a co-employment relationship. So, to give you an oversight let us tell you something about PEOs.
Several premium-quality, progressive PEOs have access to in-depth data insights, advanced technology, and skilled consultants. These PEOs use their resources to guide clients (or co-employers) to evolve their businesses strategically. How to strategically respond to workforce issues and trends, changing regulatory requirements, etc. are a few of the aspects that the PEOs cover. They help co-employers with the strategic management of several business areas, thereby increasing their overall growth.
This was the overall benefit of co-employment. Let’s have a look at the specific benefits.
Who wouldn’t want access to resources that offer Fortune-500 quality benefits? This is mainly why small and medium-sized businesses prefer co-employment relationships. PEOs in co-employment arrangements offer cost-effective and high-quality health insurance and these are quite affordable by these small and mid-sized enterprises.
Plus, administrative activities like enrollment, claims, or the PEOs cover other planning aspects of administration. Several other PEOs offer benefits that are way beyond medical insurances. They offer benefits like commuter benefits, retirement savings plans, education reimbursement, etc.
Expertise in regulatory compliance
One of the main challenges for businesses is keeping up with the regulatory changes and compliant operations. But co-employment relieves businesses of this stress.
The businesses that are not at all comfortable with regulatory compliance, take the help of co-employment arrangements.
One of the main benefits of co-employment is that the PEOs hold expertise in regulatory compliance. They have compliance and risk management experts who can look after the regulatory compliance of your business. The PEOs help the business to keep up with the changing HR regulations. They help co-employers to develop strategies that can save them from paying fines and penalties. Few of the main compliance areas that PEO services cover include taxation, business policies, and unemployment and workers’ compensation claims.
Managing the payroll
If you are a busy employer who hasn’t yet got the time to run a payroll, then you must consider a co-employment arrangement. Co-employment is the way to save yourself from being penalized for payroll errors.
PEOs manage several administrative aspects. Hence, they might consider administering the aspect of payroll on your behalf, that is, on behalf of the co-employer. This PEO service includes paying employees, calculation of wages, deductions, and filing employment taxes with the state or local agencies.
Plus, several PEOs also offer payroll integration with insurance and compliance services. This reduces errors and limits the entry of repetitive data.
Often small businesses do not have a dedicated internal HR team that can handle all HR activities. Here, these businesses can consider a co-employment arrangement for their HR needs.
In co-employment arrangements, co-employees can have the access to a committed HR team or even an HR expert depending upon the requirements of the co-employer. The HR expert or team offers strategic services to the co-employer that helps manage the business's HR support.
What’s interesting is that you can also use the PEO’s HR services as additional support. If you already have an internal HR team, you can avail the PEO’s HR support when you need expert advice or assistance.
Strategic talent management
Why should a potential candidate join your business? Your business should be attractive enough to pull in prospective talents. And the good news is that PEOs can help you with this.
One of the many benefits of co-employment is that the PEO helps co-employer businesses to appear more attractive to prospects. Plus, PEOs often assist the co-employer with employee training, onboarding, and performance management.
A few PEOs also provide strategic services to co-employers that can help them adapt to the changes in workplace demographics, increasing use of contracts and temporary or short-term workers.
Risks with Co employment
Everything has both pros and cons. So, does a co-employment arrangement. But the benefits of co-employment are much more than the potential risks involved in the arrangement.
Here are a few disadvantages or issues with a co-employment arrangement.
- Firstly, if a PEO is not IRS (Internal revenue Service) certified and if the organization fails to pay the employment taxes, the co-employer might be held responsible and might be penalized. This applies even if the co-employer pays the PEO for the taxes as a part of the co-employment contract.
- Secondly, if a business or co-employer leaves a co-employment arrangement halfway through the year, it may be subject to wage-base restart for certain payroll taxes.
We hope the concept of co-employment is now clear for you. If you’re looking for an HR outsourcing agency that can help you with each step of the PEO process, Multiplier should be your go-to solution.
With Multiplier, you can:
- Comply with the local labor laws seamlessly
- Manage payrolls and contracts smoothly
- Pay your global employees in multiple currencies
Want to know more about our services? Schedule a quick demo!