Coemployment or co-employment is a business model where a company and professional employer organization (PEO) take on the same employment duties. The employees’ employer of record is the PEO. It supports employees with human resources, payroll and benefits assistance. The PEO uses its employer identification number (EIN) to file payroll and payroll taxes. At the same time, the owner and leadership of the main business remain in charge of company employment decisions while holding onto managerial responsibilities.
What Is A Coemployment Model?
Coemployment is a contractual relationship between a business and a PEO. It lets the PEO oversee typical employment tasks, as well as administrative HR functions. This allows the employer of the company to not spend time and energy devoted to HR responsibilities. Instead, the business owner and leadership can focus on bigger goals and growth for the company.
With a coemployment model the PEO acts as the company’s staff co-employer. That does not change the fact that the business owner continues to call all the shots when it comes to decisions regarding employment and the company at large.
How Does Coemployment Work?
What is coemployment and how does it work? Say your company decides to partner with PEO. At that point it will enter a co-employment arrangement where the company employs its staff while the PEO takes on employer-related duties. This can include, but is not limited, to benefits, payroll, and human resources.
What Are The Benefits Of Coemployment?
PEO co-employment has lots of benefits. Small businesses that usually would not have access to features that larger corporations do can reap the rewards of HR experts with great service and benefits. There is more time left for leadership to do the real work instead of taking hours to do payroll, compliance, and other human resource duties. Employee retention tends to be higher and better caliber of talent usually comes to companies with a PEO co-employment arrangement.
Access to Compliance Expertise
Keeping up with HR laws, compliance, and mandatory duties is a lot for small business owners. Coemployment gives time back and balances the work responsibilities for entrepreneurs. PEO compliance experts know the co-employment laws and compliance standards to maintain the status quo with ever changing regulations.
Coemployment Simplifies Payroll
In the coemployment model, paying employees, withholding taxes, and reporting wages all goes to the PEO. Neither the business owners nor leadership needs to get involved. PEOs under a co-employment arrangement assess the right exempt/non-exempt classifications, make sure to accurately pay overtime wages and issue or file W-2 forms.
Strategic Advice on Employment Matters
A PEO co-employment aids in the management of crucial responsibilities that might need in-house HR team under other circumstances. This can include managing I-9s, employment performance review designs, creating compensation structures, creating training and development courses, drafting succession plans, and writing job descriptions.
Seamless Administration Of HR-Related Services
Worried about outsourcing to a PEO with co-employment? There is no need because a strategic coemployment contract can seamlessly integrate with existing work styles and management at your company. Communicate the needs of your small business upfront with your PEO to ensure the success of your co-employment model.
Competitive and Cost-Effective Health Insurance Benefits
Small businesses contract with PEO to give their staff access to high quality, affordable health insurance plans using a co-employment arrangement. PEO co-employment means that your company is now linked up with industry knowledge and established relationships to benefit providers. PEOs can provide coverage, oversee enrollment, manage claims, and take care of benefit-related issues that arise.
Coemloyment and Workers’ Compensation
A company can use a policy sponsored by its PEO to provide workers’ compensation as long as it is stated in the coemployment contract. Talk with potential PEOs about how and what can be offered in terms of workers’ compensation for your staff before entering a co-employment arrangement.
Risks Associated With Coemployment
Just because a PEO looks good on paper does not mean it is necessarily going to solve all your problems. What is co-employment risk? It usually boils down to tax issues, liability, delayed responses, and potentially impersonal human resource services.
Risk Of Tax Issues And Liability
Payroll, compliance, HR duties, and taxes can all be managed by a co-employment PEO arrangement. The responsibility for all of those issues ultimately rests on the shoulders of the business owner and leadership team. Should any one of these be mishandled or done incorrectly your company could face compliance violations and liability. Companies can be penalized if their co-employment PEO does not pay their taxes or if they are found to be uncertified by the IRS.
Delayed Responses
A co-employment risk that comes with a PEO is not being the only client they have. Your small business might not be the only one the PEO is working with. Answers about paychecks, insurance, and human resources might not come immediately unless the PEO provides excellent support.
Potentially Impersonal HR Service
An in-house HR department will always outdo even the best PEO. That’s because a PEO is separate from your business. It might not align with the core values, communication styles, or company culture. Changes within your company will not be immediately recognized or understood by a PEO like they would with an in-house HR staff.
Conclusion
If you are a small business that needs extra help with HR duties then consider a coemployment model. Having a PEO in your corner can take the day-to-day management of payroll, taxes, benefits, and other HR responsibilities off your plate as a business owner. There are some co-employment risks to assess before entering into a contract. Make sure to thoroughly research and interview a PEO before partnering with them in a co-employment model.
