The co-employment model is a great way for small- to medium-sized businesses (SMBs) to outsource some HR tasks to PEOs. A PEO can handle complex tasks like payroll, insurance and tax filings while the SMB controls its core business goals, strategies and culture. A client company enters into a contractual agreement with a PEO to share some employment-related responsibilities and liabilities through a client service agreement (CSA). It allows the PEO to take on time-consuming tasks that the business cannot easily or economically do.

Co-Employment Costs

While co-employment is a great way for businesses to avoid many HR and insurance costs, it can add up to some substantial sums. For example, some PEOs offer comprehensive services, such as payroll processing and insurance, but charge a percentage of the total payroll—up to 11% or more. Additionally, PEOs often require access to employees' personal information and may ask for copies of their W-4s and I-9s. For smaller companies with limited budgets, choose a PEO offering less expensive services or tiered packages. This way, you can still outsource payroll and human resources functions without sacrificing the level of quality you expect from your PEO. PEOs also provide other HR solutions and services, including risk and compliance, training and development, employee relations, and more. They can help you develop and implement best practices in these areas, which saves your internal team time and money.

Additionally, PEOs can take on some of the burdens of negotiating and purchasing worker's compensation and employment insurance policies, which reduces your overhead. They can also help you manage your workforce by conducting safety audits and recommending employee training to lower risks and liability. In addition, they can provide high-quality health coverage options for your employees that you might otherwise not be able to afford.

Co-Employment Benefits

Whether you want to reduce payroll and HR costs or improve worker benefits, co-employment may be a good option for your small business. It allows your company to retain the day-to-day control of employees while outsourcing several employment-related tasks to a PEO specialist in these areas.  A PEO may be an ideal partner for your small business because it can offer a range of employee benefits, including comprehensive health coverage and other perks that help attract and retain talent. Additionally, a PEO can provide lower rates for employee benefit plans due to their scale and negotiating power. Using a co-employment arrangement with a PEO can help companies avoid many risks of being an employer. It is because, under the contract, the PEO takes on some of the company's employment-related responsibilities and liabilities.

At the same time, the business retains ownership and control over its employees and day-to-day operations. For example, a PEO can take over payroll and employee tax filings while the business handles hiring, training and performance management. It helps to reduce the administrative burden that can take up a lot of time and energy, freeing up staff to focus on other projects. In addition, a PEO can take over employee benefits administration, such as providing workers with cost-effective health insurance and retirement savings options. Another benefit of a PEO is its expertise in workplace compliance and safety. PEOs can also assist in sourcing fresh talent and helping to develop a strong employee experience. It can help to improve employee retention, as well as boost productivity levels over time.

Another advantage of working with a PEO is that they can handle employment-related compliance issues for your company, including I-9 forms, which verify workers' identity and eligibility to work in the United States. It can help you comply with federal laws, which protects your business from expensive and time-consuming legal action. Note that PEOs differ from temporary staffing agencies that hire employees temporarily to be leased to multiple clients. Despite some overlap, the PEO model has evolved to focus more on employer administrative and compliance support while retaining the flexibility to supply workers to temporary staffing agencies.

Co-Employment Risks

Co-employment is a risky business model that can lead to legal issues and lawsuits. However, it can also allow businesses to ramp up hiring quickly and efficiently. It is because PEOs have established relationships with local recruitment networks and can offer various benefits, including tax-advantaged health savings accounts. In a co-employment agreement, the PEO assumes some employer responsibility and liability for employment taxes, payroll services, and employee benefits administration. It is done through a Client Service Agreement between the PEO and the client company, which the parties can modify. The client company retains control over day-to-day activities and work assignments despite the co-employment arrangement. Additionally, the client business still assigns performance targets to contract workers. In this way, the relationship is similar to an account known as 'employee leasing,' which is common in many markets.

Another risk associated with co-employment is that if the IRS or Department of Labor decides an employee should be classified as a contractor rather than an employee, the client company and the PEO will be held liable for that employee's misclassification. It is why it's important to make sure contracts between clients and PEOs are clear, which can be facilitated by establishing a tri-partite agreement that covers the details of the partnership.