What is Co-employment?
Co-employment is a business relationship where two companies share legal employer status for workers. This arrangement splits responsibilities between your company and a specialized HR partner like a Professional Employer Organization (PEO) or Employer of Record (EOR).
Your company keeps control of day-to-day work and supervision. The HR partner handles administrative tasks like payroll, benefits, and compliance. This setup helps you focus on growing your business while experts manage the complex parts of employment.
For example, a tech startup with 50 employees partners with a PEO to offer better health insurance and handle HR paperwork. The startup saves $200,000 yearly on HR staff costs and gets access to Fortune 500-level benefits for their team.
Definition of Co-Employment
Co-employment creates a three-way relationship between your company, your workers, and an HR partner. The partner takes on legal employer duties while you direct the actual work.
Legal Perspective
Your company and the HR partner share employer status under the law. You keep the right to manage work assignments and daily operations. The partner takes responsibility for HR administration and compliance.
This split works differently from standard employment. Each party has specific rights and duties set out in your agreement. For instance, you decide who to hire, but the partner processes payroll and tax forms.
Operational Aspects
In practice, you'll still run your business as usual. Your team reports to you, and you make all work-related decisions. The HR partner handles the administrative side:
Processes payroll and tax payments
Provides and manages benefits
Files required paperwork
Ensures legal compliance
Maintains HR records
Your workers won't see much change in their daily jobs. You'll still direct their work and make decisions about their roles. The main difference is that they'll get their benefits and paychecks through the HR partner.
Identifying Co-Employment Relationships
Co-employment happens when you share employer duties with another company. Here's how to tell if you're in a co-employment setup.
Criteria for Determining Co-Employment
Look at who controls different parts of the employment relationship:
Who manages the workers' daily tasks?
Who sets pay rates and schedules?
Who provides work equipment?
Who decides on hiring and firing?
Who handles benefits and payroll?
There's no single test for co-employment. Courts look at all these factors together.
Common Indicators
Watch for these signs of co-employment:
Workers use your company email and business cards
They wear uniforms with your logo
You handle their daily management
They join your team meetings
They work at your location long-term
These signs don't always mean co-employment exists, but they help show who acts as the employer.
Benefits and Challenges
Co-employment offers clear advantages but also brings some risks to consider.
Advantages for Employers and Employees
Your company can save money by sharing HR tasks. A mid-sized business typically saves 15-30% on HR costs through co-employment.
Your workers get better benefits. They can access health plans and retirement options usually reserved for large companies. One retail chain saw employee satisfaction rise 40% after offering improved benefits through co-employment.
You'll have more time for business growth. While the HR partner handles paperwork, you can focus on sales and strategy.
Potential Risks and Liabilities
You need to understand the legal requirements. Each state has different rules about co-employment. Missing these can lead to fines.
You'll share some control over HR decisions. This works best when you and your partner agree on policies and processes.
Data security becomes more complex. You'll need good systems to protect employee information when sharing it with partners.
Legal Implications
Co-employment brings specific legal duties you need to understand.
Tax Obligations
Both employers have tax responsibilities. You must know who handles:
Payroll taxes
Unemployment insurance
Workers' compensation
State and local taxes
Your agreement should clearly state who pays each type of tax.
Employment Law Compliance
You must follow all labor laws. Both companies can be responsible if rules are broken. Key areas include:
Minimum wage requirements
Overtime rules
Workplace safety standards
Anti-discrimination laws
Regular training helps managers understand these requirements.
Contractual Agreements
Your co-employment contract needs to cover:
Each party's specific duties
How decisions get made
Who handles different types of issues
What happens if problems arise
Have a lawyer review these agreements before signing.
Best Practices in Managing Co-Employment
Success in co-employment requires good planning and management.
Clear Division of Responsibilities
Write down who does what. Update this plan as your business grows. Your agreement should cover every aspect of employment.
Track how the arrangement works. Meet regularly to discuss any issues. Fix problems before they grow larger.
Regular Compliance Reviews
Check your practices against current laws. Both partners should stay updated on:
Employment laws
Tax requirements
Safety regulations
Industry standards
Keep detailed records of all employment actions.
Effective Communication Strategies
Create clear communication channels. Make sure everyone knows:
Who to ask about different issues
How to report problems
When to contact each partner
Where to find information
Train managers on proper communication in co-employment.
Role of Professional Employer Organizations (PEOs) and Employer of Record (EOR)
PEOs and EORs help manage employment responsibilities in different ways. While PEOs create co-employment relationships domestically, EORs take full legal employer status, especially for international hiring.
Services Provided
These partners offer comprehensive HR support:
PEOs handle domestic employment through co-employment
EORs manage international workers as the legal employer
Both provide payroll, benefits, and compliance services
They help you expand your business while staying compliant with all regulations.
Selecting a Partner
Choose a partner that fits your needs:
Check their track record and client reviews
Verify their financial stability
Test their technology systems
Compare service packages and costs
The right partner depends on your growth plans. PEOs work well for domestic expansion, while EORs help you hire internationally.
Consider starting with a small project to test the relationship. You can expand services as you grow more comfortable with the arrangement.