Many Professional Employment Organizations (PEOs) offer co-employment partnerships that help companies manage their HR-related tasks such as payroll and health benefits administration, compliance, and workers’ compensation. According to NAPEO, businesses who align with a PEO:
- Can grow their businesses 7-9% faster than those who manage all HR tasks internally
- Have a 10-14% lower turnover rate
- Are 50% less likely to go out of business
- Experience an ROI (in cost savings alone) of 27.3%
The co-employment model is the core of this relationship. However, business owners are often initially hesitant to enter into a co-employment relationship with another company. It’s understandable—after all, if you’ve dedicated years of hard work building a successful business, the idea of sharing the reins with another entity is probably daunting. However, working with a partner you trust within a co-employment business model can actually take a lot of day-to-day work off your plate, which frees you and your staff up to focus on growing your business and generating profits.
In this blog post, we’ll discuss what co-employment actually is, and debunk the most common myths and misconceptions that employers have about it.
What exactly is co-employment?
According to NAPEO, co-employment “involves a contractual allocation and sharing of certain employer responsibilities between the PEO and the client, as delineated in a contract typically called a client service agreement (CSA).”
What exactly does this mean? Basically, when you have a co-employment arrangement with a PEO, both you and the PEO are responsible for certain agreed-upon obligations of employment. The roles of your business and your PEO will depend on the specific circumstances of your relationship. Some companies may primarily choose to work with a PEO to manage their payroll and workers’ compensation programs. Their relationship will look different than a company that primarily uses PEO services for health benefits and HR compliance and support.
When you enter into a co-employment relationship with a PEO, it’s important to examine each of your individual employment obligations and responsibilities and assign them to the appropriate party in your CSA.
Myth #1: Co-employment is the same as joint employment.
While the definition of joint employment can get somewhat murky, a company is generally described as a “joint employer” with another company if it has “direct and immediate control” over that company’s employees. For example, let’s say your company entered into a joint employer relationship with a staffing company. That company would be able to hire employees for your business, which would qualify as direct and immediate control.
Co-employment is not the same thing as joint employment. In a co-employment relationship, you retain control over your employees and operations. A PEO would not make staffing decisions for you—their involvement is limited to providing HR-related services, support, and help with task management. The autonomy you need to run your business remains with you, while still receiving the help you need along the way.
Myth #2: Another company will try to change how I run my business.
This is a common initial misconception among business owners, but, in fact, although PEO partners reserve a right of control over your staff, they seldom, if ever, make any direct decisions relative to the client’s operations or worksite employees. In a co-employment relationship with a PEO, they will act in a supportive “behind the scenes” role that will enable you to streamline your operations. They should take the time to get to know your business so they can offer the most relevant advice and assistance that fits the unique challenges your company faces, but their goal should be to support your business practices—not interfere with them.
Myth #3: My business is too small to consider co-employment.
If you run a small business, you know how important it is to utilize your time and be as efficient as possible. Imagine how much time and money is lost due to a lack of "more hands on deck" to carry out some very important roles. Co-employment with a PEO can play a vital part in your company’s organizational infrastructure. For example, many PEOs are able to provide scalable solutions that allow small businesses to access more affordable health benefits options than you would normally be able to on your own.
Myth #4: Co-employment will be a big change for my employees.
Co-employment with a PEO does mean that your employees will become shared employees between you and the PEO. However, rest assured that your company continues to be the primary employer, in control of your employees as you guide their day-to-day activities. In this regard, your company will still direct work schedules, dress codes, duties/responsibilities, etc. But, the time-consuming, many of the cumbersome HR duties and HR transactions will be administered by the PEO—which is a nice change for you and your employees!
Myth #5: If I work with a PEO co-employer, I’ll have to fire my HR Staff.
The simple truth is, many small and even mid-sized businesses don’t have the resources to hire an HR staff, to begin with. Working with a PEO allows these companies to benefit from their partners’ services without having to hire additional staff.
For those companies that do have an internal HR department, co-employment with a PEO should not threaten their role, but support it. Instead of having to spend hours each day dealing with time-consuming administrative tasks, your HR personnel will be able to focus their efforts on more strategic initiatives.
When you enter into a co-employment relationship with a trusted PEO, you’re gaining a partner that has the resources and expertise to help your business run more efficiently.
