What is Co-employment?

Co-employment is a business relationship where two or more employers share responsibility and liability for a group of employees. It allows companies to outsource certain HR functions while still maintaining control and direction over the employees' day-to-day work. Co-employment can help businesses reduce administrative burdens, mitigate legal risks, and improve efficiency.
Published on
March 15, 2024
Updated on
March 15, 2024

Co-employment refers to a business relationship in which two or more employers share responsibility and liability for a group of employees. In this arrangement, the employees work for one employer, but another employer (usually a professional employer organization or PEO) also shares certain employer functions.

Co-employment can be beneficial for businesses that want to outsource certain HR functions while still maintaining control and direction over the employees' day-to-day work. It allows companies to focus on their core activities while relying on a PEO to handle HR administration and compliance matters.

How Does Co-employment Work?

In a co-employment relationship, the primary employer (also known as the client employer) maintains control over the essential aspects of the employees' work, such as job duties, performance evaluation, and compensation decisions. The secondary employer (typically the PEO) assumes responsibility for HR-related tasks, including payroll, benefits administration, compliance, and risk management.

Here's an example to illustrate how co-employment works:

  • A small tech startup wants to hire five software engineers to develop a new product.
  • The startup partners with a PEO, entering into a co-employment agreement.
  • The software engineers become employees of both the startup (the primary employer) and the PEO (the secondary employer).
  • The startup focuses on managing the software development process while the PEO handles HR tasks like payroll, benefits, and compliance.

With co-employment, the primary employer can take advantage of the PEO's expertise and infrastructure, leading to cost savings and improved HR efficiency. Meanwhile, the secondary employer (PEO) assumes liability for HR-related risks, sharing responsibility for compliance and legal matters with the primary employer.

Benefits of Co-employment

Co-employment offers several benefits for businesses:

  • Access to HR expertise: Companies can leverage the expertise of a PEO in HR management, payroll, benefits administration, and other related areas without having to build these functions in-house.
  • Cost savings: By outsourcing HR functions to a PEO, businesses can reduce costs associated with hiring and maintaining an in-house HR team.
  • Compliance assistance: A PEO can help businesses navigate complex employment laws and regulations, reducing the risk of non-compliance and potential legal issues.
  • Employee support: Co-employment allows businesses to offer comprehensive employee benefits, such as health insurance and retirement plans, which can help attract and retain top talent.

Potential Risks and Considerations

While co-employment offers advantages, it's essential for businesses to consider the potential risks:

  • Loss of control: The primary employer may have less control over certain HR functions, as they are shared with the PEO.
  • Shared liability: Both the primary and secondary employers share responsibility for compliance with employment laws and regulations.
  • Contractual obligations: It's crucial to establish clear agreements and responsibilities with the PEO to ensure a smooth co-employment relationship.

Overall, co-employment can be a valuable solution for businesses looking to streamline HR processes and focus on their core operations. Before entering into a co-employment relationship, it's important to thoroughly assess the benefits, risks, and specific needs of your organization.

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