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What is Co-Employment?

What is Co-Employment?

What is co-employment?

Co-employment is a contractual agreement between a company and a PEO that allocates and divides employer responsibilities. The contract is often called a client service agreement (CSA).

In a co-employment agreement, a PEO client’s employees (also called worksite employees) are employed by two separate entities, the client company and the PEO.

The client company is the employer who has a direct relationship with the employee and is responsible for all business decisions, operations, day-to-day supervision of employees, job assignments, employee reviews and assessments, and determining the employee's salary and benefits offerings.

The PEO provides services related to employment such as: payroll processing; payroll tax administration; employee benefits; HR services; workers’ comp coverage and claims management; compliance assistance; and HR technology platforms.

What are the benefits of a co-employment relationship with a PEO?

Through a PEO, the employees of small businesses gain access to Fortune 500-level employee benefits such as: health insurance, dental and vision care, life insurance, retirement saving plans, job counseling, adoption assistance, educational benefits, and even pet insurance. These are benefits they might not typically receive as employees of a small business.

PEOs also provide access to human resource professionals as a part of their services to small businesses. Through this service, PEOs help small businesses comply with myriad federal, state, and local employment laws, and help their employees better understand their rights and responsibilities under these requirements.

By providing payroll, benefits, and HR services and assisting with compliance issues under state and federal law, PEOs allow small businesses to improve productivity and profitability, to focus on their core mission, and to grow.

Who has control of the business?

The PEO client/business owner retains ownership of the company and control over its operations. As co-employers, the PEO and client will contractually share or allocate employer responsibilities and liabilities per a client service agreement (CSA). The PEO will generally only assume employer responsibilities like administration of benefits and remittance of payroll and payroll taxes. The client will continue to have responsibility for worksite safety and compliance. The PEO will be responsible for remittance of payroll and employment taxes, may maintain employee records and may retain a limited or general right to hire and fire, as delineated in the CSA. Because the PEO also may be responsible for providing access to workers' compensation coverage, many PEOs also focus on and provide assistance with safety and compliance.

In general terms, the PEO will focus on employment-related issues, and the client company will make all decisions related to day-to-day operations, business growth, supervision and evaluation of employees, job assignments, and employees’ salary and benefits. 

Who makes decisions about hiring and firing?

Generally, the client company makes decisions about hiring and firing. However, the PEO will typically work with the client company to manage potential risks and ensure that procedures are being followed and documented appropriately.

Many PEOs also provide recruitment assistance to help the client company find qualified candidates with the right skills who will fit into the organizational culture.

How does co-employment impact the employees?

There is little, if any, disruption to existing employees when the co-employment relationship is established. The client company continues to employ the employees with the PEO becoming a co-employer for certain purposes.

Employees appreciate the wide array of benefits available to them through the PEO, as well as the online technology PEOs can offer and the availability of HR expertise. A recent study by noted economists Laurie Bassi and Dan McMurrer showed that, when a company uses a PEO, employees have greater trust and confidence in the business and higher levels of engagement.