What is Co-Employment? A Quick Guide for Companies

Posted January 30, 2018 by Kristin Hoppe in Running a Business 101
Learn how a co-employment model can help your business save time and money on day-to-day tasks.

If you run a business, maybe you’ve heard of the term co-employment. Chances are you came across it while looking at HR solutions or options for providing your team with access to benefits. Professional Employer Organizations, or PEOs, are structured on the co-employment model.

Psst… Want to learn more about PEOs? Download our free ebook that explains Why PEOs are Advantageous for Small Businesses.

What is Co-Employment?

According to the National Association of PEOs, co-employment is “a contractual allocation and sharing of certain employer responsibilities between the PEO and the client.”

In English? Co-employment allows small- to medium-sized businesses to outsource certain HR and payroll functions to a PEO.

In this post, we’ll focus on co-employment with a PEO in particular. If you’re looking for the other side of the coin, Fit Small Business has a helpful guide on co-employment with a staffing agency.

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How Does Co-Employment Work?

If your business decides to work with a PEO, you’ll enter into a co-employment arrangement. That means you’ll continue to employ your employees, but a PEO will become a co-employer with you to help administer certain employer-related responsibilities and ease the burden of payroll, benefits, and HR administration.

In particular, co-employers will help your business with the following:

Payroll Functions

Think automated deposits, one-off payments, and payroll tax filings. Co-employers will help administer payment to full-time and part-time employees (salaried and hourly), and sometimes vendors and contractors, as well. For this reason, your employees will see the PEO’s name, e.g., Justworks, on their paychecks. In sum, they’ll handle the nitty gritty of payroll administration, so you can focus on running your business.

Certain Government Tax and Reporting Forms

A co-employer will usually offer compliance support for certain employer taxes, employee tax forms, and reporting forms. That might include specified forms, such as:

  • Employer payroll tax filings on Forms 940 and 941
  • Forms W-2 and 1099
  • EEO-1
  • Forms related to R&D Tax Credits
  • COBRA forms

...and the list goes on. Taking these bureaucratic tasks off your plate often helps employers focus more on the core functions of their business.

Managing Employer Risks

Every day, employers take on risks — even if their business is in a quiet, white-collar office environment. An co-employer will help manage risks like unemployment claims and workers’ compensation. They’ll also help provide you with additional safeguards for your business, such as access to Employment Practices Liability Insurance, or EPLI.

Generally, EPLI covers employment claims alleging wrongful termination, discrimination, harassment (including sexual harassment), and retaliation. Depending on the program, EPLI may also provide coverage for other employment-related claims such as defamation or invasion of privacy.

Having a co-employer to help manage certain risks can help keep your company safe in the long-run in case something unexpected should arise.

Related article: A Starter Guide to Addressing Sexual Harassment in the Workplace

Benefits Administration

Administering benefits can be a whole job — or department — in and of itself. A co-employer helps with different types of benefits administration, such as benefits onboarding, claims, and other benefits-related paperwork.

A co-employer can also help with access to high-quality benefits for your team that you may not otherwise be able to afford. That’s because the co-employment model typically aggregates the employees of many small business together to harness the buying power normally reserved for much larger businesses.

Having a co-employer to help manage certain risks can help keep your company safe in the long-run.

What Are the Benefits of Co-Employment?

There are plenty of reasons employers opt for a co-employment arrangement. They include having:

  • Access to top-notch, affordable benefits usually reserved for much larger corporations
  • More time to focus on the actual business, and not its payroll and benefits administration
  • Trusted support for HR and compliance issues
  • Higher levels of employee retention than companies that don’t use a PEO
  • A level playing field to compete for talent with other businesses

What Are the Downsides of Co-Employment?

If you don’t want your payroll, benefits, HR, and compliance support centralized in one place, it might not be the right fit for you. However, most small business owners find a high level of convenience in consolidating certain HR functions so they can focus on the real work of running their business.

Justworks Can Help

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We built Justworks as a PEO because we believe the co-employment model works better for entrepreneurs who are serious about taking care of their teams. As one of the first PEOs to receive ‘certified’ status by the IRS, we are subject to stringent operational and financial standards.

To service you best, we’ve built simple, fast and automated software that you and your team can access online anytime.

Learn more about how we can help your business at Justworks.com.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.