What is Co-Employment in 2024?

Most people understand the concept of employment. An employer and an employee engage in a mutual contract; one provides services and work, and the other provides compensation for that support. However, many small businesses and medium-sized ones are now engaging in what is technically referred to as “co-employment,” a scenario in which a professional employer organization or PEO is functioning as the employer from an HR perspective, but the client company runs the organization and business in total. One might chalk this up to being just another term for an outsourced HR office, but there are significant advantages for the client company that a regular employer-employee relationship doesn’t have.

How the Shared Employment Works

At its most basic nature, co-employment involves a contractual partnership between two entities: a client company and a PEO. The PEO handles everything associated with the human resources side of the operation. That includes all the hiring, personnel filing, tracking, payroll, payroll taxes, reporting, workers’ compensation, compliance reporting and unemployment documentation. In the meantime, the client company focuses entirely on its operation, putting all of its expertise in core functions versus administrative activities with personnel management. The advantages are clearly seen with an expertise focused on HR services delivery and the client company management focused on maximizing performance of the company instead. It’s a very useful model for companies that are small and nimble and unable to dedicate full resources to the HR function without losing capacity in their core mission.

Advantages are Plenty

Because PEOs already operate with a larger pool of activity and integration of client company’s staff, they are able to aggregate the representation of their clients into a larger body for the purposes of benefit services, disability coverage and more. That allows smaller companies to easily enjoy and access benefit services they otherwise would not have access to because of not having a large enough member pool in their own. The difference between a larger group benefit plan and that available directly to small businesses can be tremendous, and its primarily based on scales of economy, an aspect that would otherwise lock small businesses out entirely.

In addition to the above, a PEO handles the book of record for the transactions it handles and deals with directly in HR activities. This is key because it is very hard for a client company to keep track of activities it is not handling directly and yet still be accountable for them. Instead, the HR management aspect is taken off the hands of the client and represented by a much larger presence of the PEO.

PEOs can also bring a considerable amount of consulting help to a client company too, as needed. While the primary relationship may be about managing day-to-day HR functions, when major tasks are needed or a reorganization is needed, a PEO can leverage its other assets to bring in help for safety consulting, training, organizational design, and business strategy planning with labor resources.

In-House Training for Future Adoption

Eventually, as a business grows, it will usually and eventually take over functions in outsourcing at first. It simply makes sense to have those necessary areas under direct control. The beauty of the co-employment model is that it allows ongoing training of in-house personnel without being in a crisis to know things right away. Instead, the transition and knowledge transfer happens over time, and a client company can eventually grow into its administrative HR function when ready. 

Definitely Worth Considering

For companies that need to stay flexible but also need to stay on the right side of the rules with their HR management, a PEO partnership and co-employment makes a lot of sense. Small businesses can leap across the learning curve divide immediately, as well as gain access to resources and services they otherwise would be too small to obtain otherwise.