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What is Co-Employment?

 

Here at the Distillery we are constantly asked, "What is Co-employment?!  Co-employment is a business relationship in which two separate entities share the responsibility for managing an employee’s work experience, typically through a Professional Employer Organization (PEO). This arrangement allows companies, especially small and medium-sized businesses (for our purposes 5-200 employees), to outsource certain human resources (HR functions like payroll, benefits administration, tax compliance, and risk management, while retaining control over the day-to-day supervision and operational aspects of their workforce).

 

In a co-employment relationship, the PEO becomes the "employer of record" for specific HR functions, while the client company (the business using the PEO’s services) remains the worksite employer. This means that the PEO handles many of the administrative tasks related to employees, such as processing payroll and managing employee benefits, while the client company continues to control the employees' job responsibilities, performance, and daily work activities.

 

Key Components of Co-Employment:

 

Shared Employer Responsibilities:

In co-employment, both the PEO and the client company assume certain responsibilities for the employee. The PEO handles the employer-related compliance tasks (like tax filings, workers' compensation insurance, and benefits administration), while the client company oversees job performance, hiring, and firing decisions.  One of the key questions for every PEO you are evaluating is "how do you handle terminations, am I truly autonomous or do I need to follow your guidance in order to be covered by the EPLI policy!  Answers across PEOs vary widly and it's worth digging in here!

 

Payroll and Benefits:

The PEO processes payroll and ensures that employees are paid correctly and on time, as well as manages employee benefits like health insurance, retirement plans, and other perks. The PEO also ensures that the business remains compliant with local, state, and federal tax laws.

 

Risk Management and Compliance:

One of the most important aspects of co-employment is that the PEO helps mitigate the risk of non-compliance. The PEO handles important compliance areas like workers' compensation insurance, occupational safety, labor law adherence, and tax reporting. This can significantly reduce legal and financial risks for the client business.

 

Employment Taxes:

The PEO assumes the responsibility for employment-related tax filings and ensures that all necessary tax withholdings are made and reported correctly. This includes federal, state, and local payroll taxes.  One of the key questions to ask here is whether the PEO will be opening new state Tax ID's on your behalf!  Knowing how much help you're going to be getting when you a hire in a new state is a crucial piece of information!

 

Benefits of Co-Employment:

 

Access to Expertise and Resources:

A PEO provides small and mid-sized businesses with access to expert HR services, technology, and resources that might otherwise be out of reach due to cost constraints. By pooling clients together, a PEO can offer benefits and resources that are typically available only to much larger organizations.  Often times folks come to shop with us with the aspiration of "Feeling like a bigger company" from the perspective of a future employee... this is certainly achievable with PEO.

 

Cost Savings:

The co-employment model allows businesses to save money by leveraging the PEO’s buying power, particularly for employee benefits like health insurance, retirement plans, Worker's Compensation and other perks. Small businesses can offer employees competitive benefits that they may not be able to afford on their own.

 

Focus on Core Business:

By outsourcing administrative HR functions to a PEO, businesses can focus more on their core operations and growth initiatives. The PEO manages routine tasks like payroll and benefits, allowing business owners and managers to devote more time to strategic planning, product development, or customer service.

 

Risk Mitigation:

HR compliance can be complicated, especially for businesses that operate in multiple states or industries with strict regulatory requirements. The PEO helps reduce risk by ensuring that all employment practices meet legal standards, such as labor laws, tax regulations, and workplace safety rules.

 

Employee Support:

Employees benefit from the co-employment relationship because they gain access to a wider range of benefits, better HR support, and greater stability. PEOs typically offer more comprehensive healthcare options, retirement plans, and even employee wellness programs, which can improve employee satisfaction and retention.