Have you run across the term co-employment recently? In the world of HR, co-employment is a heated topic.
How can two companies employ the same people?
What are the risks?
What are the benefits?
Professional Employer Organizations (PEOs) use co-employment to deliver exceptional value to employers across the globe. Unfortunately, the term "co-employment" is a little confusing.
Believe it or not, there are multiple types of co-employment, and some types can lead to significant risk for your business. With thousands of blogs dedicated to this topic, there are plenty of half-truths, misconceptions, and downright inaccurate information floating around (even on Google’s front page).
Time to demystify one of HR's most confusing subjects. Here's everything you need to know about co-employment and how it helps PEOs provide unfair advantages to small and mid-market companies.
Co-employment is a legal tool that PEOs leverage to take over administrative responsibilities that traditional outsourced HR services can't handle. Technically, co-employment is a legal arrangement where two companies share responsibility for the same set of employees. However, PEOs use co-employment a little differently than staffing agencies, franchisors, and consultant companies.
PEOs do not control employee scheduling, involve themselves in the day-to-day running of the business, or retain the right to hire and fire employees. Instead, co-employment is a fantastic tool that allows PEOs to act as "employers of record" for your employees. Using co-employment, PEOs can file your taxes under their Federal Employment Identification Number (FEIN), share tax liability, and provide a host of other benefits.
Co-employment is the PEO "secret sauce." PEOs deliver an average ROI of over 27%, which is primarily due to the advantages afforded by co-employment.
Economies-of-scale benefits & benefits administration
The average small or mid-market company pays 18% more for benefits than their enterprise-scale competitors. Risk pooling — a calculation benefits providers utilize to price their services — emphasizes scale. The more employees you have, the less you have to pay for insurance. It's an entirely legal practice, and it's based on some relatively sound science. Five percent of workers consume over 50 percent of healthcare costs. So, the more employees you have, the easier it is to predict the provider’s costs.
Considering the value of securing world-class benefits, risk pooling puts small and medium-sized businesses in a tricky position. Having highly-rated benefits reduces attrition by 56%, and over 50% of employees have left their job solely due to finding better benefits elsewhere. Unfortunately, small and medium-sized businesses can't compete with Fortune 500 companies on benefits, which often leaves them struggling to attract and retain top talent.
Co-employment helps PEOs flip the script.
PEOs can aggregate employees from all the companies they partner with into one package — giving them the buying power of Fortune 500 companies. This means better benefits at lower costs to your business. PEOs also handle benefits administration, which can often require an entire internal department if done solo.
Employer of record services
Co-employment gives PEOs the tools to administer payroll, file taxes, and tackle the nitty-gritty of payroll compliance. Additionally, PEOs take on compliance burdens for a variety of regulatory bodies. These include labor laws, COBRA, and tax forms. Think about the pure scale of your compliance requirements. PEOs can handle some of the more immediately-demanding compliance needs and keeps you safe from OSHA violations..
Workers' compensation insurance
Here's another area where co-employment unlocks new areas of opportunity. You can join your PEOs workers' compensation master plan. Again, since PEOs are "employers of record," they can legally maintain workers' compensation for your business. This is incredibly cost-effective. You don't have to put down an upfront deposit, and you don't have to sign any long-term agreements. You simply pay month-to-month to utilize your PEOs workers' comp insurance plan. You even get to adopt the PEO’s lower premium rates and EMR (experience modifier rate).
End-to-end human capital management
PEOs act as a single point of contact for virtually every human capital management requirements. From payroll to compliance, risk mitigation, employee handbooks, administration needs, and hiring strategies to HR technology, PEOs provide holistic support to keep your business compliance and risk-free in the HR space.
The PEO co-employment relationship is carefully constructed to meet HR needs without impacting your day-to-day operations. You can have your cake and eat it too. Co-employment gives PEOs the ability to:
There's a reason that companies with PEOs are 50% less likely to go out-of-business. PEOs provide unparalleled HR value, and it's all thanks to co-employment.
PEOs aren't the only type of company that offers co-employment. There are multiple "types" of co-employment. Staffing agencies have their version of co-employment, and the same can be said for recruiting companies and franchisors. The way that co-employment is formulated varies drastically between these businesses.
PEO co-employment is a relationship that allows PEOs to tackle tricky HR requirements. However, it does not give the PEO control over the hiring and firing process, scheduling, or the day-to-day running of your business.
Staffing agency co-employment does involve hiring and firing, scheduling, and often even the handling of employee records. Of course, those services are central to the value provided by staffing agencies. Unfortunately, those small changes make a big difference in terms of risk. Staffing agencies can incur a "joint employer" status — where you share responsibility with your staffing agency for labor decisions made for their employees.
An example of this in action is the famous Microsoft vs. Vizcaino lawsuit. Microsoft hired a staffing agency to supply them with temporary workers. Despite not being on Microsoft's payroll, these workers sued Microsoft for being classified as independent contractors instead of non-exempt employees. The temp workers won the lawsuit.
This "joint employer" relationship does not happen with PEOs.
Joint employment happens when two (or more) businesses supervise and control the same employee(s). Often, businesses want to avoid joint employment outright. It creates unnecessary risk burdens. Employment liabilities are shared between both businesses in a joint employment relationship. So, if one of the employers fails to uphold labor laws, both employers are responsible.
Obviously, this can be terrifying for businesses. You don't want someone else's mistakes to impact your capital. Luckily, PEOs do not incur joint employment. The Department of Labor (DOL) recognizes a co-employment relationship as a "joint employment relationship" with any of the following conditions are met:
PEOs do not fit any of those criteria.
In a nutshell, PEOs are co-employers — but they are not joint employers. The DOL gives specific examples of working with a PEO and how it does not incur a joint-employer relationship.
Most employees have no idea what a PEO is or what they do for your company. But that doesn't mean they don't love them. Surveys show that employee engagement level (+5), commitment levels (+8), trust (+7), and confidence (+5) all grow when you partner with a PEO. That makes sense. PEOs offer better benefits, less stress, and a more holistic HR ecosystem for employees. In turn, your company enjoys the fruits of improved productivity and employee engagement. Everyone wins.
The value of the PEO model of co-employment is evident for everyone in your organization. Your existing HR staff will enjoy a renewed focus on growth, culture, and people instead of boring and redundant paperwork.
Your employees will enjoy better benefits, advanced HR tech, and swift answers to critical questions. And you will enjoy increased profits, a world-class ROI, and unparalleled growth potential.
Co-employment isn't just another tool in your PEO's arsenal. It's the driving force that makes PEOs the single most cost-effective outsourced HR partner.