What Is Co-Employment?

Small and medium-sized businesses often find themselves stuck in complicated HR-related management and administration. These complex functions may also keep them from fulfilling their expansion vision. Businesses may also compromise on their operational efficiency and productivity by managing their HR activities on their own. However, for any company, minimizing risks and maximizing their human assets must be the priority to grow. To achieve this, companies are shifting towards co-employment services offered by Professional Employer Organizations (PEOs).

What is Co-Employment?

Co-employment means that two different organizations divide employer responsibilities between themselves. Often, co-employment involves a client business and a Professional Employer Organization (PEO).

Usually, this type of co-employment arises via a client service agreement in which the PEO agrees to become the co-employer or employer of record for its client. In such an arrangement, both the company and the PEO hire the employees. The company manages performance, targets, and control over employee roles. On the other hand, the PEO handles the administrative and compliance tasks associated with the employees.

Co-employment is a common operating model for national PEOs operating in the US. 

In summary, the control over the following functions remain with the company:

  • Business operations
  • Daily tasks and performance of job activities
  • Communication over the employee’s targets.

The PEO takes care of the co-employment tasks related to the backend management of the employee. It includes:

  • Locating and recruiting employees (upon request)
  • Managing payroll and other employee benefits
  • Maintaining the employee database.
  • Deducting applicable taxes
  • Complying with the local tax and regulatory laws
  • Performing employee surveys and exit interviews. 

Benefits of Co-Employment

An expanding company that opts for co-employment services can benefit in multiple ways by hiring a PEO as its employer of record. One of the primary benefits of co-employment is that the PEO assumes the company’s legal and administrative responsibilities, freeing it to focus on its expansion. Let’s look at some of the other benefits of co-employment:

Streamlined HR Management of Employees

With a PEO, the company can streamline HR management of employees. As an HR specialist, a PEO enables small and medium-sized enterprises to compete with large organizations in terms of HR quality. It also effectively allows client companies to draw on the economies of scale of a large organization and provide more competitive packages of employee benefits. 

Commonly, a PEO can provide the source the following additional employee benefits:

  • Medical, dental and health insurance
  • Retirement benefits
  • Accidental and life insurance
  • Disability benefits
  • Traveling benefits
  • Educational allowance
  • Rent allowance
Since a PEO has an extensive network of local vendors, it can create an appropriate and affordable employee benefits package for the company in any country, state or region it seeks to expand into. The PEO can also handle the negotiations with benefits providers, manage employee enrolments and registrations, and ensure timely execution of such benefits. This way, a client company can attract top-quality talent similar to its large counterparts.

Efficient Payroll Management

With co-employment, the company can also make its payroll planning and management more efficient. The PEO takes care of the employee compensation and paychecks, along with the proper reporting of salaries. It also manages employee income and payroll tax compliance on behalf of the company. This leaves the company room to focus on improving its own core business.   As part of its payroll management, a co-employer PEO can also help the company accurately identify its employees and independent contractors and categorize them correctly. Misclassification of even a single contractor can impact the entire payroll system of the company.

Employee Benefits Coverage and Claims

In a co-employment, the PEO handles all the claims relating to workers’ compensation, retirement benefits, leaves, holidays, etc. It also protects the company as it gets coverage under the policies applied by the PEO. When it comes to employee claims, a PEO can take care of the wrongful termination claims, investigations, workplace harassment claims, on-the-job injury, etc. These events may even result in a legal suit against the company if not handled properly. A PEO can also take all the preventive measures to ensure that no compensation claims or complaints go unanswered. A PEO does this while also ensuring that the costs for the company remain low.

HR Planning and Strategizing

Co-employment also means that the PEO will help the company formulate a robust and effective HR strategy. A PEO can suggest the right policy measures that can help the company expand its human capital and grow. Along with planning, the PEO also helps with the paperwork and onboarding formalities, and enables the company to design its HR Policies processes. The PEO also helps the company to implement efficient leadership development and training programs, and curate knowledge material for the employees. From succession planning to conducting exit interviews, from building employee recognition plans to performing relationship-building exercises. A PEO offers a wide variety of co-employment services.

Myths About Co-Employment

Many companies are confused about what to believe about co-employment and what it means to hire a PEO. Here are some of the most common myths about co-employment:

Co-employment Means Losing Business Control

One of the most popular misconceptions about a PEO is that co-employment will lead to the company losing control over its HR functions. However, in reality, the company is only delegating its employment responsibilities to the PEO while still controlling all the decisions. The PEO’s co-employment also depends upon what the company allows it to do.

Employees Do Not Accept Co-employment

Many business owners think that their employees will be unhappy if an outsider manages their employment. However, with a PEO, the payroll, leaves, benefits, etc. are processed more promptly, improving the employee-company relationship. There are no effects on an employee’s productivity or core job functions since the PEO only takes care of the administrative part of their employment.

Co-employment Replaces In-house HR

HR professionals think that a PEO can take their place and render them unemployed. However, for a PEO to work effectively, large and mid-sized companies need an internal HR department. A PEO can align its activities with the in-house HR team to ensure uninterrupted management of the workforce. This way, the HR team no longer requires to perform repetitive HR tasks and can focus on the holistic growth of the human capital

Choosing the Right PEO for Co-employment

Managing the multifaceted HR functions can be challenging for a company, especially a young startup or a small enterprise. A PEO can simplify the HR responsibilities of the company by becoming its co-employer. New Horizons Global Partners offer an array of personalized co-employment and market entry solutions for all your HR and expansion requirements. Contact us today to learn more about our peerless co-employment solutions for your business expansion and management.

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