What is a co-employment agreement?

Improving operational efficiencies, minimizing organizational risks and strengthening talent are key for employers. But, achieving them might require a co-employment relationship with a Professional Employer Organization (PEO).

Co-employment partnerships with a PEO are unique relationships in the business environment. This kind of relationship can sometimes bring confusion, especially when swapped with other terms such as “employee leasing,” which are totally different. So what is the definition of co-employment? Where exactly do PEO companies participate? Let’s check it out in this article. 

What is a co-employment agreement?

This agreement happens when two or more parties share legal employer responsibilities. A co-employer usually takes over its client’s administrative and employment tasks.

Hired employees work for the client’s organization and not the PEO, so new employees carry out the designated roles and responsibilities they were hired for while reporting directly to the client’s organization. The PEO comes into play only as an outsourced management resource taking care of (employee) HR, accounting, benefits and compliance activities.  

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How does co-employment work?

Despite some misconceptions, co-employment does not mean that the client employers cede ownership or lose total control of their organization. In reality, the client continues to manage its employees and the day-to-day operations, while the PEO focuses on HR-related tasks. In general terms, we can see it as follows:

Organization and business owners have control over:

• General business decisions.
• Key operations taking place within the company.
• The daily activities and main responsibilities of the employee.

Professional employer organizations have control over:

1. Responsibilities that are common to employers and that have previously been defined and agreed on, such as: managing payrolls, payroll deductions, payroll taxes or the provision of benefits to employees. 
2. Managing the worker’s claims and compensation coverage. Basically, PEOs provide the client company with HR related advisory.

Midtown HR is the company behind a hundred happy companies. We are focused on providing simple solutions for payroll and taxes, proposing benefits that really feel like benefits, keeping up with employment law and also helping protect your team. Let’s talk!