Co-employment

How does co-employment work?

Co-employment involves a partnership between the client company (or business owner) and a PEO, where each party assumes specific employer responsibilities. The client company does what they do best: They focus on running their business. Meanwhile, as their employment partner, the PEO acts as an HR expert, streamlining certain HR administration processes and compliance tasks, which frees up more of the client company’s time and resources for strategic and value-adding work.

Company responsibilities

In a co-employment relationship, the client company retains control over:

• Day-to-day management: Directing their employees' daily tasks and responsibilities.

• Work environment: Maintaining a safe and productive workplace.

• Hiring and firing: Making decisions on hiring, promotions, and terminations.

• Salaries and wages: Choosing how much to pay all workers.

• Performance management: Conducting performance reviews and evaluations and managing employee performance.

Co-employer responsibilities

The PEO, as the co-employer, handles:

• Payroll processing: Managing payroll calculations, payroll tax withholdings, and distributions.

• Benefits administration: Offering and administering employee benefits such as health insurance, retirement plans, and other perks.

• HR compliance: Ensuring compliance with employment laws and regulations, including worker classification and reporting requirements.

• Risk management: Providing workers' compensation insurance and managing claims.

When would a company use co-employment?

Companies may use co-employment arrangements for many different reasons. Some of the most common situations in which a company might engage in a co-employment relationship include:

• HR outsourcing: To outsource complex HR functions and reduce administrative burden on their own in-house team.

• Compliance: To ensure compliance with labor laws and regulations, especially when expanding into new regions.

• Focus on core business: To allow their internal HR team to focus on core business operations without being bogged down by time-consuming administrative tasks.

• Access to better benefits: To provide employees with access to better benefits plans that might not be feasible or affordable for a smaller company to offer independently.

PEOs vs EORs

While professional employer organizations (PEOs) and employer of record (EORs) are often used interchangeably, they aren’t the same and they don’t both operate under a co-employment model.

PEOS:

• Enter into a co-employment relationship with the client company.

• Share responsibilities, allowing the client to manage day-to-day operations while the PEO handles HR tasks.

EORs, which are sometimes called international PEOs:

• Act as the sole legal employer for tax purposes and compliance.

• Are typically used for hiring in international markets where the client company does not have a legal entity.

What is a staffing agency?

A staffing agency provides temporary or permanent employees to client companies. Unlike co-employment, staffing firms retain full control over employment responsibilities, including payroll and benefits, while the client company directs the work.

What is employee leasing?

Employee leasing involves a leasing company providing workers to a client business on a long-term basis. This is a way that businesses can access skilled workers without having to go through the complexities of recruiting and employing them—especially when they only need to employ them on a temporary basis. Once they’ve fulfilled their work obligations, employees engaged through leasing return to the staffing company.

What is joint employment?

Joint employment occurs when two or more businesses share control over an employee's work or working conditions. Both companies may be held liable for compliance with labor laws and regulations.