What is co-employment?

Co-employment, often facilitated through professional employer organizations (PEOs), involves a contractual arrangement where a client company shares certain employment responsibilities with the PEO, which becomes a legal co-employer. This arrangement helps companies manage HR tasks and share legal liabilities.

Here's a closer look at how co-employment works:

Contractual Agreement: Upon deciding to engage a co-employer, the client company enters into a written contract, typically called a Client Service Agreement (CSA), with the PEO. This agreement outlines the responsibilities of both parties and establishes them as legal co-employers. Co-Employer Responsibilities: The co-employer, or PEO, handles various HR functions and legal obligations, including hiring, firing, work authorization checks, payroll processing, compliance with employment laws, and managing workplace policies. Client Company Responsibilities: While the co-employer manages HR-related tasks, the client company retains responsibility for the day-to-day management of its employees. This includes tasks such as coaching, delegating assignments, conducting evaluations, and providing appropriate work conditions.

Benefits of co-employment arrangements include:

HR Support: Co-employment provides reliable HR support to client companies, saving them costs and time associated with building an internal HR department, particularly beneficial for startups and small businesses. Talent Acquisition: Co-employers can help client companies attract skilled workers by offering advice on hiring practices, training, and providing competitive employee benefits packages. Compliance Assistance: PEOs assist with compliance and regulatory oversight, helping companies navigate complex HR regulations and avoid fines and penalties. Outsourced Payroll and Benefits Administration: Co-employers manage payroll, including calculating salaries, paying workers, and handling taxes. They also assist with benefits administration and ensure compliance with workers' compensation insurance. However, there are risks associated with co-employment, such as tax errors and misclassification of workers. To mitigate these risks, companies should ensure they work with certified co-employers and properly classify workers to avoid penalties and legal consequences. It's essential to distinguish co-employment from other arrangements such as joint employment and employee leasing. Joint employment involves two separate employers governing the same workforce, while employee leasing entails staffing agencies providing temporary workers. Finally, while co-employers cannot hire international workers, employers of record (EORs) offer similar services with additional legal protection and support for international hiring, making them suitable for companies planning to expand globally.