What is co-employment?
Most simply put, co-employment is a relationship between two or more employers whereby each has the legal responsibilities to the same employee.
Why would a business want to enter into a co-employment relationship?
Professional Employer Organizations (PEOs) enter into co-employment relationships with approximately 180,000 small and mid-sized businesses to reduce liability and take advantage of the benefits and HR infrastructure typically found in larger organizations.
The National Association of Professional Employer Organizations (NAPEO) explains it like this:
Once a client company contracts with a PEO, the PEO will then co-employ the client’s worksite employees. In the arrangement among a PEO, a worksite employee and a client company, there exists a co-employment relationship, which involves a contractual allocation and sharing of employer responsibilities between the PEO and the client pursuant to a client service agreement (CSA).
The PEO typically remits wages and withholdings of the worksite employees and reports, collects and deposits employment taxes with local, state and federal authorities. The PEO also issues the Form W-2 for the compensation paid by it under its EIN.
The client company retains responsibility for and manages product development and production, business operations, marketing, sales, and service.
The PEO and the client will share certain responsibilities, as determined in the CSA. As a co-employer, the PEO will often provide a complete human resource and benefit package for worksite employees.
How would co-employment look to my business in everyday situations?
While the exact services will depend on your current HR situation and needs, here’s an example of a common situation we see among prospective clients.
You’ve built your business over the years, and it has steadily grown from 5 employees (mostly friends and family) to 20 employees (many of whom you’ve hired through a traditional recruiting process). You are excited to continue to grow your business and are focused on attracting and retaining good employees. You decide to offer health and dental insurance to compete for talent. You’ve also found a 401(k) provider that will work with small businesses for an administrative fee, which also helps you plan for your future.
You’ve been spending a great deal of time shopping for the right health insurance carrier and plans, and then informing your employees and getting them set up with the correct new benefits. Employees have had a lot of questions regarding these benefits. When you add all of this time spent on the new benefits plans to the time you typically spend on employee-related items like vacation and leave requests, payroll corrections, and employee disputes, you realize you are spending 50% of your time on employee-related activities instead of mission-critical ones.
A fellow business colleague mentions you may want to consider partnering with a PEO. You decide to find out more about how a co-employment relationship might benefit your business.
Here’s what you learn:
- You need to sign a co-employment agreement with the PEO, whereby your employees are now the co-liability of you and the PEO. This includes any employee litigation.
- Because the PEO is entered into co-employment relationships with other businesses, you all get to take advantage of large group rates on health and dental insurance as well as short-term disability, long-term disability, and life insurance if you chose. Your employees also have access to an Employee Assistance Program (EAP).
- Your workers’ compensation and unemployment rates are now lower as your business benefits from the economies of scale.
- The PEO will take on the administrative burden of all of your benefits, including the costly annual 401(k) audit, eliminating an annual $10,000 investment.
- Because this particular PEO is IRS certified, the government has recognized them as financially stable, and they are completely responsible for compliantly remitting your taxes after you’ve transferred them to the PEO.
- You now have a full team of HR experts at your disposal including a certified HR expert, a payroll specialist, a full benefits team, a risk manager and an EAP case manager. These professionals will now handle all of your employee-related human resource items that have been taking up 50% of your time.
This is just one example of a business that would benefit from a co-employment relationship.
You may wish to partner with a PEO if you:
- Experience excessive turnover
- Seem unfamiliar with employment law or worry about non-compliance
- Consider business expansion, but multiple sets of state employment laws and taxes seem daunting
- Recognize you need HR help, but cannot afford a full-time person
- Strive to offer an exceptional workplace
- Desire access to more affordable, Fortune-500 style benefits
- Intend to buy or sell business entities
Co-employment seems like an affordable way to gain back my time, so I can continue to grow my business.
Will I lose any control of my business or my employees with a co-employment relationship?
A PEO is not interested in running your business for you. You will continue to make the employee-related decisions including hiring and firing. What you will gain, however, is a group of certified professionals that will help you navigate complex and seemingly ever-changing, employment laws and other HR issues to make the best decisions for your business. Together, you will work to create a compliant and exceptional workplace for your employees.
For more information on the benefits of co-employment or partnering with a PEO, call 630.928.0510 or email firstname.lastname@example.org. You can also fill out our FREE Consultation request to receive a financial comparison between your current HR practices and our services.
Our Business Development Managers are happy to sit down with you to compare your current HR practices and how they can become more efficient while offering an exceptional workplace for your employees.
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