Understanding the Co-Employment Relationship


Jessica PerkinsSaaS Marketing Consultant & Writer

Friday, September 17, 2021

Most employers want to hire experienced workers that are both efficient and risk-averse. However, it can be challenging to manage all the aspects of the hiring process, especially if your business is growing fast. Enter co-employment, a relationship that could solve most of your operational problems.

Article 5 Minutes
Understanding the Co-Employment Relationship

How does co-employment work?

Co-employment occurs when two or more parties share legal responsibility for the business. A co-employment agency will reduce the client's employer responsibilities, taking care of things like HR tasks and running payroll. As a co-employer typically takes over employment or administrative related tasks with a contract, they will be held legally liable for fees incurred due to their negligence.

A co-employment agreement can be on a part-time or full-time basis. Smaller businesses or start-ups may want to work their way up to full employment by using their services weekly.

Introducing CPEOs: Certified vs. Uncertified

Onboarding a CPEO (Certified Professional Employer Organization) is more beneficial for your company than hiring an uncertified PEO, as they come with perks. Only certified PEOs can achieve certain legal and financial protections, such as the following.

  • Tax liability: Federal employment taxes become the full responsibility of the CPEO and not the client, meaning you’ll stay legally compliant.
  • Eliminates some wage base tax restarts: Clients that contract with a CPEO won’t be subjected to double taxations from the Federal Unemployment Tax Act (FUTA) or Federal Insurance Contributions Act (FICA).
  • Tax credits: CPEO clients are eligible for certain federal tax credits. You’ll still receive money back from your taxes, even if you enter into a co-employment relationship.

If you enter into a co-employment relationship with an uncertified PEO, the IRS will find you legally responsible for anything they do, including mistakes made on their end. You’ll also have to pay for federal payroll taxes for both yourself and the uncertified PEO. In the end, it’s better to seek payroll services from certified companies only.

What are the benefits of co-employment?

A CPEO needs you to succeed to stay in business. Since they’re held liable for your taxes, they must stay up-to-date on federal, state and municipal laws. CPEOs also want you to trust them and keep using their services, which is why they provide a wide variety of benefits.

Payroll management

CPEOs assume responsibility for your payroll, including paying workers, reporting wages, and managing employment taxes. They’ll ensure compliance and accuracy, which simplifies processes like employee classification, distribution of overtime, and issuing and filing forms. This can save a huge amount of time, especially across a large organization.

Access to Better Benefits

When you hire a CPEO, you receive strong benefit packages which may go even further than what you could otherwise provide for your employees. A typical co-employment relationship will offer you medical, dental, vision, flexible spending accounts, retirement plans, life insurance, disability, adoption, and educational assistance, and commuter benefits. As the plan sponsor, they can negotiate your rates.

HR Planning and Support

Along with payroll, CPEOs offer HR support and planning to assist your in-house HR team and help your company grow faster. A CPEO might manage employee paperwork, conduct employee performance reviews, construct a compensation structure, implement training, create a succession plan, create organization charts, build recognition programs, write job descriptions and interviews.

Workers Compensation

CPEOs will take over the risk associated with workers’ compensation by providing coverage for the client. The client won’t have to investigate a claim, discuss benefits with injured employees, or make arrangements for an employee's return, as a CPEO will do that for you. Again, for large corporations, this could add up to a lot of time saved.

What a Co-Employment Relationship Isn’t

There are multiple misconceptions about co-employment. Let’s take a look at what a co-employer won’t do to your business and how your employees will react.

  1. You Won’t Lose Control of Your Business: A co-employer won’t interfere with the management of your company, nor will they start making decisions on your behalf. A co-employer shares obligations, but the business owners and board of directors will retain control over their business.
  2. Your Employees Won’t Notice The Change: Some business owners worry that employees won’t embrace the new changes. However, there is little disruption, and your employees will remain under your business. If anything, they’ll appreciate the benefits.
  3. CPEOs Won’t Replace In-House HR: Many large businesses with in-house HR staff hire CPEOs to provide guidance, strategic initiatives, performance management, and organization planning. CPEOs don’t replace your HR team; they just work alongside them!

It’s perfectly logical to be worried about the switch, but CPEOs want to help, not cause issues for your corporation. It’s in their best interest that you remain at the helm and continue operating successfully!

What are the risks of hiring a co-employer?

Like any business maneuver, hiring a PEO can be a risk, but only if the company you hire is uncertified. CPEOs come with little risk involved, but you should still do the following.

  • While speaking to the CPEO, ask them directly what they’ll offer you.
  • Get your lawyer to draft up a contract or review the one that the CPEO provides.
  • Detail the responsibilities of each party in the contract.
  • Exclude or require contract workers to sign the same contract.
  • In the contract, declare that the CPEO stays legally liable.
  • In the contract, state that the CPEO cannot exert control of your company.

It’s better to prepare for the worst than assume the CPEO offers a service they may not give.

Jessica Perkins

SaaS Marketing Consultant & Writer

A growth hacker at heart, Jessica helps SaaS companies rapidly scale their inbound leads through lean marketing strategies. She views content marketing and advertising as the perfect concoction of growth, and loves to write about her insights and experiences.


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