What Is Co-Employment?
Co-employment is a formal partnership where a company collaborates with a Professional Employer Organization (PEO) to handle certain human resources functions. In this shared employment model, responsibilities are divided between the business and the PEO, each managing different aspects of the employment relationship.
How Co-Employment Works
Running a business involves more than just hiring great talent, it also requires consistent management, competitive compensation, benefits administration, and staying compliant with labor laws. When these obligations become overwhelming, co-employment can offer relief.
Through this arrangement, the PEO assumes responsibility for selected HR tasks, such as payroll, benefits, and compliance, while the employer maintains control over daily operations and workforce decisions like hiring, managing, or terminating employees. The scope of services is typically outlined in a formal agreement known as a Client Service Agreement (CSA).
Why Companies Choose Co-Employment
Many companies, especially small and midsize businesses, turn to co-employment to ease administrative burdens and gain access to broader HR expertise. With the support of a reliable partner like Beyond, employers can shift their focus from paperwork to strategic initiatives like scaling operations and improving performance.
Some of the core advantages include:
- Payroll Management: The PEO may handle full-cycle payroll, including tax withholdings, garnishments, benefits deductions, wage calculations, W-2 processing, and payroll tax filing under its Employer Identification Number (EIN).
- Access to Better Benefits: Smaller employers often struggle to offer competitive benefits. PEOs can leverage group purchasing power to provide clients with high-quality options such as health coverage, retirement plans, and wellness programs.
- Expanded HR Support: While the client maintains authority over who is hired or let go, the PEO can assist with tasks like onboarding, compliance training, benefits administration, and performance tracking. They also help clients stay informed about labor laws and industry best practices.
Risks to Be Aware Of
While co-employment offers many benefits, it’s important to manage the relationship carefully.
Over-Dependence on the PEO
Some businesses may begin to rely too heavily on their PEO and assume the PEO will handle all HR-related issues, even those not covered in the CSA. Employers should maintain awareness of their own responsibilities and ensure they’re still actively involved in managing timekeeping systems, payroll funding, and employee communications.
Tax Responsibility Concerns
In co-employment, the PEO often handles tax remittance, but the employer could still be held accountable if the PEO fails to submit required payments. Choosing an IRS-certified PEO (known as a Certified Professional Employer Organization, or CPEO) adds protection, as the certified provider takes full responsibility for tax filings and payments on behalf of the client.
Co-Employment vs. Employee Leasing
It’s important not to confuse co-employment with employee leasing. Under co-employment, the PEO is not supplying labor, it’s offering HR support services. The client remains responsible for hiring, supervising, and retaining their workforce. If the relationship with the PEO ends, the client keeps all its employees.
Employee leasing, on the other hand, involves a staffing agency providing temporary workers who remain employed by the agency. These workers are sent on assignment and paid by the staffing firm, not the client company. Once the job ends, the agency can reassign the workers elsewhere.
In short, co-employment is typically a long-term solution for HR and administrative support, while employee leasing is geared toward short-term staffing needs.
With support from platforms like Beyond, businesses can navigate co-employment arrangements confidently, ensuring both efficiency and compliance while building a stronger, more resilient workforce.