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22 Jul

Asked and Answered: What is Co-employment?

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With so many different kinds of human resource outsourcing (HRO) companies, it can be confusing and a bit intimidating to choose a partner in the PEO, HRO, and co-employment space. If you decide to work with a professional employer organization (PEO), like VensureHR, it’s important to understand the operating model.

A PEO is often referred to as co-employment – and we’ll break down everything you need to know, including the benefits and risks.

Understanding Co-employment

According to NAPEO, co-employment refers to a contractual client service agreement (CSA) that allocates certain responsibilities between the PEO and the client company. This means that the PEO will assume some of the employer’s rights, responsibilities, and risks while keeping the responsibility of the day-to-day operations on the business owner.

Some responsibilities a PEO may take over include payroll, benefits, and human resources. With so many areas where the PEO offers assistance, each co-employment agreement is different and depends on the needs of the client organization.

Partnering with a PEO does not take any form of ownership away from the client company. In a co-employment agreement, the client company still reserves its rights when making any final decisions regarding the business, such as operations, hiring/firing employees, customer services, etc.

Benefits of Co-employment

Now that co-employment/PEO has been defined, the next question you should ask is, “What benefit does co-employment have for me?” There are many benefits to co-employment that can have a positive impact on your business and employees.

To start, a PEO operating under the co-employment model will provide your business and your employees enterprise-level benefits. This means your business has benefit options available that are traditionally only offered to large-scale, enterprises with hundreds of employees. Through the PEO relationship, you’re able to receive these types of benefits at incredibly low rates that would otherwise be unattainable without the partnership.

Another benefit of partnering with a PEO is access to customizable retirement plan options for you and your employees.

Offering your employees a 401(k) option is important in regards to recruiting top talent and retaining high performing employees. In fact, according to MetLife’s 2021 U.S. Employee Benefit Trends study, 78% of employees say some form of a retirement plan is a must. Your co-employment partner can help you navigate through all the different plans and options for 401(k)s and even offer expertise as to which plans make the most sense for your business.

Outside of benefits, PEOs will also assume the responsibility of processing payroll and your workforce’s time management – more commonly referred to as time and attendance.  PEOs will help track and manage items such as paid time off (PTO), sick days, vacations, in addition to time worked. Partnering with a PEO like VensureHR means you’ll have access to this service without an added cost.

Another benefit to co-employment is the PEO will manage most tax-related items. Because of the co-employment model that PEOs operate on, they will assist with:

  • Calculating and paying required payroll tax liability for the client.
  • Optimize tax bills to ensure all relevant deductions that are allowed in the country of establishment are made.
  • State Unemployment Tax (SUTA) and Insurance (SUI) compliance
  • Federal Unemployment Tax (FUTA)

Many of these benefits are tasks that the business owner would manage themselves, leaving less room to really focus on what’s most important–growing and running the business. These are some of the tasks that a PEO can take over and manage, alleviating these burdens from the business owner.

What are the risks of co-employment?

There are no real risks to co-employment with a PEO. As mentioned previously, the business owner doesn’t relinquish any ownership of their business whatsoever. The owner of the client company still calls all of the shots.

While there aren’t risks to highlight, we can still offer advice: Pick a PEO to partner with that best suits the needs of your business. Not all PEOs are the same and some may offer more benefits for your business than others. In general look for a PEO partner that is transparent, provides intuitive technology, and provides the necessary services to help your business grow quickly.

Co-employment Myths Debunked

There are many assumptions about co-employment that aren’t true. Here are a few myths debunked about co-employment:

  1. Co-employment Replaces My HR staff
    If you enter a co-employment agreement, your HR staff isn’t going anywhere. A PEO would work directly with your current HR staff and provide additional expertise when developing new HR programs or managing HR tasks. A PEO often brings seasoned and experienced subject matter experts to the table to further improve upon the well-oiled machine you already have.
  2. Using Freelancers Puts you at Risk
    Utilizing independent contractors (ICs) like freelancers can be great for your business. If they’re properly classified, then they present no risk. If properly classified, their documentation will show they have no employer or co-employer. A freelance “employee” acts as its own business.
  3. Co-employers and Joint Employers are the Same Thing
    In a joint employment agreement, both the business and the HR company have joint control and supervise the duties and daily processes of the employees.
  4. Co-employment is Bad
    Co-employment can be great for your business and has a number of invaluable benefits that allow you to get back to running your business. With only 40% of small businesses turning a profit annually, the remaining 60% are either breaking even or losing money. If by partnering with a PEO could help your business join the 40%, that’s actually a good thing.

Don’t let misinformation keep you from exploring the co-employment option for your business.

If you want to learn more about how co-employment and a PEO can help you, schedule a free HR diagnostic with a VensureHR huma resource specialist today.

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