In the United States, co-employment is popular. However, if you are based outside of the US, you might not be so familiar with the concept.
Co-employment involves a unique business relationship between a company (the client) and a PEO (Professional Employment Organisation). This relationship can be confusing — especially when used synonymously with other terms.
To help simplify things, we thought we’d start by clarifying what co-employment is NOT…
“Employment leasing” often gets confused with co-employment. However, it is an entirely separate type of business arrangement.
Employment leasing refers to an organisation providing short-term contractors to another company. Unlike co-employment, employment leasing typically operates under a given timeframe. The work will often be project-specific and have set parameters, including an official start and end date.
In a co-employment arrangement, the PEO won’t make hiring or staffing selections for their client, whereas employment leasing is most commonly associated with staffing agencies. The staffing agency is the only legally responsible employer in employee leasing. However, in co-employment relationships, both the PEO and client company share legal responsibility for the employee.
“Joint employment” and co-employment are often used interchangeably, too. In both situations, the two separate organisations share legal oversight of and responsibility for the employee. However, there is one crucial difference between the two concepts.
With joint employment, both entities can guide daily activities, as well as direct ongoing business operations such as recruitment and interviews. In co-employment, only the client organisation has direction over the work and responsibilities of its employees.
So then, what exactly is co-employment?
Put simply, co-employment is a functional contractual arrangement between a PEO and its client, whereby they share the rights and responsibilities of a hired employee. Although it’s important to note that the employee works directly for the client company, not the PEO.
The company will continue to manage the worker’s everyday activities and maintain responsibility for core role functions, including undertaking performance reviews.
The co-employer will then take over any administrative or personnel-related tasks, such as payroll and benefits. They also act as the official employer of record for tax and insurance purposes. At no point is the employee outsourced to the PEO — not even to conduct temporary work.
When do PEOs enter the equation?
Like any business arrangement, co-employment opens doors to new opportunities — but with that also comes questions, new processes and risk. When venturing into new territory, operations can quickly become overwhelming, leading to mismanaged or neglected compliance.
What you don’t want to be worrying about are country-specific employment laws or complex accounting and HR functions. You just want to get on with managing and expanding your business. This is where a PEO steps in — alleviating compliance risks, as well as the administrative burden of HR, finance, legal and tax functions.
The PEO becomes the employer of record — creating a clear division of duties and delivering all the benefits of outsourced administrative functions while reducing inherent risks.
Want to know why PEO Worldwide should be your partner of choice for co-employment services? From legal advice to HR, payroll and complete management of employee contracts and benefits, we take care of everything for you. Contact us today to find out more.