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What is co-employment?

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Co-employment is a contractual relationship between a business and a professional employer organization (PEO) where each has responsibilities associated with being an employer.

In this arrangement, the business handles responsibilities regarding the worker’s job duties and day-to-day functions and the co-employer takes on personnel-related administrative functions, such as payroll.

Co-employment commonly occurs when companies want to outsource HR-related administrative functions. The PEO will handle HR functions (recruiting, hiring, and payroll) and the company oversees the work agreement. In this situation, both the PEO and the hiring company are the employers.

What are the risks of co-employment?

One of the biggest risks of co-employment is non-compliance. Businesses need to understand specific laws and regulations regarding how to properly manage, pay, and onboard them.

Another potential risk is misclassification of independent contractors. If a business controls the worker’s hours, location, and working methods, but doesn’t provide the worker with benefits, the contractor may feel they should be classified as an employee and take legal action against the staffing agency and the business.

Avoiding non-compliance requires a solid classification strategy, knowledge of how to treat contractors, and the right partners to raise any potential flags.

What are the benefits of co-employment?

Co-employment helps business leaders focus on running their business by outsourcing HR-related tasks. A few other benefits of co-employment include:

  1. Access to Compliance Expertise
    Not all companies have the resources to stay up-to-date with compliance regulation or fulfill HR-related responsibilities to the best of their abilities. A PEO helps ensure businesses comply with all relevant laws and regulations.
  2. Streamlined Payroll Administration
    In a co-employment arrangement, the PEO handles payroll duties including paying employees and withholding the right taxes. The PEO also reports wages and taxes for employees, classifies all workers, issues and files W-2 forms, and more, so the company can turn their attention to growing the business.
  3. Access to expert employment advice
    PEOs typically have invaluable industry knowledge HR-related topics such as:
    • Competitive employee benefits
    • How to structure effective job descriptions
    • How to fill out employment forms
    • Building compensation structures
    • Training and development strategies
    • Creating effective succession plans
    • And more

By utilizing a PEO’s knowledge, employers can stay competitive and retain their top talent, all while ensuring their organization is running smoothly.

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