The concept of co-employment can be confusing. However, in today’s scenario, when 40% of workers have contractual jobs, it is essential that employers develop a basic understanding of the concept of co-employment. Worry not, as we’re here with:
- An in-depth guide on co-employment
- The components of co-employment
And everything else you need to know.
So, without further ado, let’s get started.
What is Co-Employment?
The definition of co-employment is often confused with joint employment or employee leasing, but it is not the same. Co-employment is a contract between a Professional Employer Organization (PEO) and its client – another business entity – to share certain employment-related responsibilities. It is useful for reducing a few employer-related liabilities and costs.
How does Co-Employment Work?
In a co-employment contract between a PEO and an employer, the co-employer takes care of their employees and the regular operations. On the other hand, the PEO looks after HR-related tasks such as employee benefits, regulatory compliance, payroll, etc. Both the PEO and the client organization share employee rights and responsibilities.
The Co-Employment Arrangement – A Detailed Breakdown
In a co-employment arrangement, the PEO and the employer share the roles and responsibilities. The PEO and co-employer relationship only works well when they take up the responsibilities and team up to fulfill them.
Here’s a clear breakdown of the employer’s and PEO’s responsibility in co-employment.
In a co-employment arrangement, the co-employer manages the daily activities and the core functions. These include:
- Everyday responsibilities, roles, and tasks of the co-employed employee
- Performance reviews and appraisals of the co-employed hire
- Overall decisions of employment and business related to the co-employed employee
We would like to mention that the co-employer is not needed to stress over the HR activities. This is where the PEO comes into the picture.
The PEO takes care of the state or country-specific payroll legalities related to the employees.PEO(s) generally hold expertise in finance, HR, tax, and legal functions.
PEO shares the responsibilities and liabilities of the co-employer. It helps in managing co-employment risks. Let us take a look at the PEO’s responsibilities.
In a co-employment arrangement, a PEO focuses on administrative activities such as:
- Organization and administration of employee compensation, benefits, and insurance.
- Arrangement and administration of employment taxes with the proper national and state agencies
- Playing the role of an official employer for tax records and insurance purposes
- Administration of group benefits, employee termination, workers’ compensation, and unemployment claims, if relevant.
You should note that the employees hired do not work for the PEO. Nor are they outsourced (even for temporary work) to the PEO at any point in the PEO co-employer relationship. The daily responsibilities of the employees remain with the organization they had applied to for employment.
Benefits of a Co-Employment Relationship
We hope that the concept of co-employment is pretty clear now. So, let’s move on to the benefits of co-employment.
You might be thinking about what we can get from a co-employment relationship. So, to give you an oversight, let us tell you something about PEOs.
Several premium-quality, progressive PEOs can access in-depth data insights, advanced technology, and skilled consultants. These PEOs use their resources to guide clients (or co-employers) to evolve their businesses strategically. How to strategically respond to workforce issues and trends, changing regulatory requirements, etc., are a few of the aspects that the PEOs cover. They help co-employers with the strategic management of several business areas, thereby increasing their overall growth.
This was the overall benefit of co-employment. Let’s have a look at the specific benefits.
Who wouldn’t want access to resources that offer Fortune 500 quality benefits? This is mainly why small and medium-sized businesses prefer co-employment relationships. PEOs in co-employment arrangements offer cost-effective and high-quality health insurance, which is quite affordable for these small and mid-sized enterprises.
Plus, administrative activities like enrollment, claims, or the PEOs cover other planning aspects of administration. Several other PEOs offer benefits that are way beyond medical insurance. They offer commuter benefits, retirement savings plans, education reimbursement, etc.
Expertise in regulatory compliance
One of the main challenges for businesses is keeping up with regulatory changes and compliant operations. But co-employment relieves the stress of this business.
Businesses that are uncomfortable with regulatory compliance take the help of co-employment arrangements.
One of the main benefits of co-employment is that the PEOs hold expertise in regulatory compliance. They have compliance and risk management experts who can look after the regulatory compliance of your business. The PEOs help the business to keep up with the changing HR regulations. They help co-employers develop strategies to save them from paying fines and penalties. A few of the main compliance areas that PEO services cover include taxation, business policies, and unemployment and workers’ compensation claims.
Managing the payroll
If you are a busy employer who hasn’t yet got the time to run a payroll, then you must consider a co-employment arrangement. Co-employment is the way to save yourself from being penalized for payroll errors.
PEOs manage several administrative aspects. Hence, they might consider administering the aspect of payroll on your behalf, that is, on behalf of the co-employer. This PEO service includes paying employees, calculation of wages, deductions, and filing employment taxes with state or local agencies.
Plus, several PEOs also offer payroll integration with insurance and compliance services. This reduces errors and limits the entry of repetitive data.
Often small businesses do not have a dedicated internal HR team that can handle all HR activities. Here, these businesses can consider a co-employment arrangement for their HR needs.
In co-employment arrangements, co-employees can have access to a committed HR team or even an HR expert depending upon the requirements of the co-employer. The HR expert or team offers strategic services to the co-employer that helps manage the business’s HR support.
What’s interesting is that you can also use the PEO’s HR services as additional support. If you already have an internal HR team, you can avail of the PEO’s HR support when you need expert advice or assistance.
Strategic talent management
Why should a potential candidate join your business? Your business should be attractive enough to pull in prospective talents. And the good news is that PEOs can help you with this.
One of the many benefits of co-employment is that the PEO helps co-employer businesses to appear more attractive to prospects. Plus, PEOs often assist the co-employer with employee training, onboarding, and performance management.
A few PEOs also provide strategic services to co-employers that can help them adapt to the changes in workplace demographics, increasing the use of contracts and temporary or short-term workers.
Risks with Co-Employment
Everything has both pros and cons and so does a co-employment arrangement. But the benefits of co-employment are much more than the potential risks involved in the arrangement.
Here are a few disadvantages or issues with a co-employment arrangement.
- Firstly, if a PEO is not IRS (Internal Revenue Service) certified and if the organization fails to pay the employment taxes, the co-employer might be held responsible and might be penalized. This applies even if the co-employer pays the PEO for the taxes as a part of the co-employment contract.
- Secondly, if a business or co-employer leaves a co-employment arrangement halfway through the year, it may be subject to wage-base restart for certain payroll taxes.
It’s clear that the disadvantages of co-employment are minuscule when compared to the advantages; moreover, they can be avoided by being just a little careful!
Co-Employment with Multiplier is all you need
With Multiplier, you can:
- Comply with the local labor laws seamlessly
- Manage payrolls and contracts smoothly
- Pay your global employees in multiple currencies
Want to know more about our services? Schedule a quick demo!