Highlights
- Co-employment is a strategic partnership where two companies share legal responsibilities for employees.
- By partnering with a PEO, businesses can gain access to Fortune 500-level benefits, HR technology, and compliance support.
- Tandem HR provides PEO services for growing businesses, helping them navigate HR challenges and focus on core operations. Schedule a call to discuss your business needs.
The demands of daily HR tasks can often hinder growth, consuming valuable time and resources that could be better spent on higher-impact activities. But co-employment offers a strategic advantage.
By sharing employer responsibilities, your business can gain access to competitive benefits, more efficient HR processes, and expert guidance, all while maintaining control over their day-to-day operations.
This guide delves into the world of co-employment, exploring its definition, benefits, potential risks, and how it can transform your business.
What Is Co-employment?
Co-employment is a relationship between two or more employers where each shares legal responsibility for an employee.
Professional Employer Organizations (PEOs) enter into co-employment agreements with small and mid-sized businesses, helping them reduce liability and gain access to employee benefits, HR technology, and expertise typically found in larger organizations.
According to the National Association of Professional Employer Organizations (NAPEO), in a PEO co-employment arrangement, the PEO becomes the employer of record for payroll and tax purposes, while the client company retains control over day-to-day operations and employee management. Additionally, the PEO often provides HR services, compliance assistance, workers’ compensation, and a benefits package for employees.
How Does Co-employment Work for a Small Business?
Co-employment can transform a small business. Imagine you’ve built your company over the years and now employ 20 people. You are excited to continue to grow your business and are focused on attracting and retaining good employees. To stay competitive, you introduce health and dental insurance, along with a 401(k) plan.
Initially, this feels like a positive step. However, the reality quickly sets in. You find yourself consumed with the administrative burden: researching insurance plans, onboarding employees, answering benefit questions, and managing routine HR tasks like vacation requests, payroll corrections, and employee disputes. Suddenly, you’re spending 50% of your time on employee-related activities, instead of core business objectives.
That’s where co-employment, specifically through a Professional Employer Organization (PEO), can make a significant difference. Here’s how it would work in your scenario:
- You enter a co-employment agreement with the PEO, establishing a shared employer relationship. This means the PEO shares legal responsibilities for your employees, including potential employee litigation.
- Leveraging the PEO’s large client base, you gain access to better group rates for health, dental, disability, and life insurance. Your employees also benefit from an Employee Assistance Program (EAP).
- Your workers’ compensation and unemployment rates are now lower as your business benefits from economies of scale.
- The PEO takes over the administrative burden of your benefits, including the costly annual 401(k) audit, saving you $10,000 annually.
- Because this particular PEO is IRS-certified, the government has recognized them as financially stable. They are completely responsible for compliantly remitting your taxes after you’ve transferred them to the PEO.
- You gain access to a team of HR experts, including certified HR professionals, payroll specialists, benefits administrators, risk managers, and EAP case managers. These professionals handle all your employee-related HR tasks, freeing up your time to focus on strategic growth.
What Are the Benefits of Co-employment?
These are the top reasons to partner a PEO and engage in a co-employment relationship:
Access to Better Employee Benefits
PEOs pool together the employees of multiple client companies, which gives them greater negotiating power with insurance providers. This allows small businesses to offer more comprehensive and affordable health insurance, retirement plans, and other benefits, including access to what are often considered Fortune 500-level benefits. This makes them more competitive in attracting and retaining top talent.
Reduced Administrative Burden
PEOs handle many time-consuming HR tasks, such as payroll processing, tax administration, benefits administration, and compliance with labor laws. This frees up business owners and their staff to focus on their core business operations.
Enhanced HR Compliance
Staying up to date with ever-changing employment laws and regulations can be challenging for small businesses. PEOs have expertise in HR compliance and can help businesses avoid costly legal mistakes.
HR Expertise and Support
PEOs provide access to experienced HR professionals who can offer guidance on a wide range of HR-related matters, such as employee relations, performance management, and risk management.
Reduced Risk and Liability
By sharing employer responsibilities, PEOs help mitigate risks associated with employment-related issues. They can also help with workers’ compensation issues, which can save a business money.
What are the Risks of Co-employment?
While co-employment, particularly with a PEO, offers numerous benefits, it’s essential to be aware of the potential risks involved. Here’s a breakdown of some key concerns:
Lack of Clarity of Contractual Agreements
A poorly written co-employment agreement can lead to confusion and disputes over responsibilities. If the contract is ambiguous, you may have problems regarding who handles specific HR functions or legal liabilities. To avoid this, make sure to review and understand the co-employment agreement.
Liability Concerns
Even with a PEO, the client company retains some level of liability. If the PEO makes errors in payroll or tax filings, or if there are compliance issues, the client company could still face legal or financial consequences. To minimize these risks, research the PEO’s reputation and their expertise in your industry and with companies of your size.
Will I Lose Control of My Business or Employees with Co-employment?
Absolutely not. A PEO acts as a strategic partner, not a replacement for your leadership. You retain complete control over core business operations, including hiring and firing decisions. What you gain is the strategic support of certified HR professionals who will guide you through complex employment laws and HR challenges. Together, you’ll build a compliant and thriving workplace.
When is the Best Time to Partner with a PEO?
Partnering with a PEO can be a strategic move for businesses facing specific challenges and seeking growth opportunities. Consider a PEO partnership if you:
- Struggle with high employee turnover
- Face compliance concerns
- Consider business expansion, but complex regulatory and tax requirements seem daunting
- Recognize you need HR help, but cannot afford to hire full-time staff
- Strive to offer a competitive and supportive workplace
- Seek more affordable, Fortune 500-level benefits
- Are involved in mergers and acquisitions
- Need to regain time to focus on core business functions
How Tandem HR Can Help
Are you ready to streamline your HR, access Fortune 500-level benefits, and reclaim valuable time to focus on growing your business? At Tandem HR, we specialize in providing comprehensive co-employment solutions through our Professional Employer Organization (PEO) services.
Contact our team of experts today and learn more about our tailored HR solutions.
