What is co-employment and how can it help your business?
Co-employment or PEOs are extremely popular now. See this article from one of the PEOs that we represent on why it benefits certain companies depending on different criteria.
From Our Friends at Insperity By Roger Nicholson
If you’re like most employers, you’d like to create operational efficiencies, minimize risk and maximize talent – so that your business can be more profitable.
To achieve this, a co-employment relationship with a professional employer organization (PEO) might be the best solution.
How does co-employment work?
Co-employment is a contractual agreement between a company and a PEO that allocates and divides employer responsibilities between the two. The contract is often called a client service agreement (CSA).
In a co-employment agreement, your company’s employees (also called worksite employees) are employed by two separate entities:
The client company
The PEO
The PEO supplies services and benefits to a business and its existing workforce. (PEOs don’t supply a workforce.)
The business owner maintains control of:
All business decisions
Operations
Employees’ daily duties and core job functions
The PEO, in turn, assumes or manages certain employer-related responsibilities that are outlined and agreed upon in the CSA.
For instance, the PEO is typically responsible for:
Processing payroll
Administering payroll deductions
Issuing paychecks
Preparing, filing and depositing payroll taxes
Providing benefits to worksite employees
Workers compensation coverage and claims management
Providing HR advice to the client company
What are the benefits of a co-employment relationship?
When you enter a co-employment relationship, the PEO co-employs your employees and assumes certain employer responsibilities, while the client company gains access to numerous benefits.
In fact, this relationship incentivizes the PEO to align itself with your business goals and be a true partner in growing your business.
Here’s how the co-employment relationship can translate into benefits for your business:
1. Access to big-business benefits
Being an employer allows the PEO to offer benefits to its worksite employees. This shifts the risk associated with sponsoring employer-sponsored benefit plans to the PEO.
In addition, PEOs will typically offer a wide variety of benefits, many of which may not have previously been available to your employees.
Typical benefits offered by a PEO include:
Medical, dental and vision coverage
Health care flexible spending accounts
Retirement plans
Life and personal accident insurance
Short-term and long-term disability insurance
Adoption assistance
Commuter benefits
Educational assistance
As the plan sponsor, the PEO assumes all plan sponsor responsibilities and obligations from start to finish. This includes managing and administering the benefit plans.
You no longer have to worry about:
Negotiating rates with providers
Managing employee enrollment and notifications
Conducting nondiscrimination tests
2. Simplified payroll
The PEO also assumes responsibility for paying worksite employees, and the payment and reporting of wages and payroll taxes under its FEIN. This helps to ensure accuracy and compliance, and simplifies the payroll process so you can focus on other areas of your business.
Other payroll-related services include:
Assisting you in determining proper exempt/non-exempt classifications
Helping to ensure overtime pay is distributed appropriately
Issuing and filing W-2 forms
3. Workers’ compensation coverage and claim management
As an co-employer, PEOs can take on a client company’s workers’ compensation risk by providing worksite employees coverage under a policy sponsored by the PEO. In addition, the client company is provided with coverage under the PEO’s policy.
This relationship means that a reputable PEO will be invested in helping:
Investigate claims
Communicate with injured employees and their physicians
Assist with return-to-work arrangements
With potential liability through the co-employment relationship, it’s in the PEO’s (and everyone’s) best interest to take proactive measures to avoid workers’ compensation claims.
This can include:
On-site evaluations
Recommendations from safety specialists
Safety trainings
Effective management of the program and proactive measures to prevent workplace injuries benefit both your company and the PEO by keeping costs low.
4. Strategic HR support and planning
A reputable PEO will do everything in its power to help you effectively and sustainably grow your business. When your company expands, often so does your headcount.
Therefore, in a co-employment relationship, a PEO might help you:
Manage I-9s and other employee paperwork
Design and conduct employee performance appraisals
Construct base compensation structures
Implement training and leadership development services, including supervisor coaching or online learning courses
Create an organizational chart and succession plan
Write job descriptions
Build an employee recognition program
Conduct company climate surveys
What are some common misconceptions about co-employment relationships?
There are a number of misconceptions about co-employment that exist because of pre-conceived notions about outsourcing in general:
1. You’ll lose control of your business
The most common is the belief that contracting with a PEO will result in a loss of control for the business owner.
In reality, the structure of a co-employment relationship allows you, the business owner, to retain control over business decisions and your employees’ daily to-dos and core job functions.
The PEO assumes or shares only those specific employer obligations set forth in your CSA.
2. Your employees will revolt
Business owners also worry that their employees won’t embrace the new arrangement or that employees will be considered as temporary or non-permanent employees.
These concerns are (seemingly) logical but unwarranted.
There is little, if any, disruption to existing employees when the relationship is established, and at no time is employee “leasing” involved in the agreement. The client company continues to employ the employees with the PEO becoming a co-employer for certain purposes.
Employees will also appreciate the benefits available to them through the PEO, as well as the online technology PEOs can offer.
3. Co-employment is a way to replace existing HR professionals
A co-employment relationship is administrative in nature and is beneficial to employees, including the existing HR staff.
PEOs often align with existing HR departments to provide much-needed expertise in areas where extra help is needed. A PEO can often extend a greater depth and breadth of benefits and services than could typically be offered by the business alone.
With that help, your existing HR team can focus on more strategic initiatives, such as organizational planning and performance management.
The result is a stronger organization and a better way of doing business.
Summing it all up
Being an employer has never been more challenging, highly regulated and time consuming than it is today.
The good news is that you don’t have to go it alone.
Now that you can answer the question “What is co-employment?” you can begin your search for a reputable PEO that can help drive your business forward.
