What is co-employment?
Co-employment refers to a contractual relationship in which a business shares employment responsibilities with a professional employer organization (PEO). This is advantageous to organisations that want to mitigate some of the costs and liabilities associated with being an employer. However, this does not mean that employers cede ownership or lose control of their business. By outsourcing through co-employment, businesses continue to manage their employees and day-to-day operations, while the PEO focuses on HR-related tasks.
Is co-employment the same as joint employment?
Co-employment and joint employment are not the same, largely in regard to workforce management. In a co-employment arrangement, only a single party makes labour-related decisions. Whereas joint employment considers the input of both parties with regard to wages, hours, new hires, terminations, etc.
What are the benefits of co-employment?
1. Access to top business benefits
High-quality and cost-effective health insurance are some of the major reasons why small and midsized businesses enter into co-employment arrangements. Apart from supplying coverage, PEOs generally manage enrolment, claims and other aspects of plan administration. Some even offer benefits beyond health insurance, like retirement savings plans, education reimbursements, and more.
2. Full-service payroll
With a PEO by their side, the benefit of co-employment in payroll means that they can administer aspects of payroll on behalf of the business, including calculating wages and deductions, paying employees, and filing employment taxes with government agencies. Many PEOs also possess the capability of integrating payroll with timekeeping and insurance services, whip reduces errors and limits repetitive data entry.
3. Compliance expertise
PEOs have risk and compliance experts who keep up with the evolving HR regulations and work with clients to develop strategies that can help protect them from fines and penalties. The areas of focus include tax reporting, unemployment and employees’ compensation claims, and workplace policies.
4. Employees’ compensation coverage
With PEOs providing coverage for employees’ compensation insurance on behalf of their clients and handling claims that arise, they take away one headache for businesses. They can also conduct safety audits and recommend employee training programs to limit workplace injuries and employer liability.
5. HR support
Businesses without a dedicated internal team for HR can rely on a PEO for their HR needs. In an arrangement of co-employment, businesses may have a dedicated HR team depending on the level of strategic support required. On the other hand, if they have their own resources, they can continue to use them and may only partner with the PEO whenever additional expertise is required.
6. Talent management strategy
The benefits packages that come with co-employment helps businesses appear more attractive to prospective talent. But that’s not all, they also assist with onboarding, employee training and performance management. Some PEOs also provide strategic services that help employers adapt to changing workplace demographics and the increasing prevalence of contract and short-term workers.
What are the risks to co-employment?
The benefits of co-employment generally outweigh the any potential risks. However, if the PEO is not certified by the IRS and fails to pay taxes on behalf of the client, the responsibility for the error would fall on the client and they would be penalized. Even if the client already paid the money for the taxes to the PEO as part of the contract.
Another risk associated with co-employment is that in the event that the business joins or leaves a co-employment arrangement in the middle of a year, it may be subject to a wage-base restart for certain payroll taxes.
How to avoid co-employment risks
Avoid the risks associated with co-employment by partnering with PEOs that meet the rigorous background, financial and reporting requirements necessary for certification with the IRS and the Employer Services Assurance Corporation (ESAC).
These are the advantages offered by Certified professional employer organizations (CPEOs):
- CPEOs hold the sole responsibility for the payment of their clients federal employment taxes.
- Businesses can join or leave a CPEO at any time of the year without facing a wage-base tax restart.
- CPEO clients can clim tax credits for which they would normally be eligible of they were not in a co-employment arrangement.