This guide explains why co-employment is essential to a PEO relationship. It discusses how HR duties can take away from your time running your business and how a PEO can help give you more benefits.

2. Your Guide to Co-Employment
If you’re like most employers, you spend an inordinate amount of time on payroll, recruiting,
and other human resource (HR) tasks at the expense of what truly matters – growing your
business. If HR duties are keeping you from being more competitive, a co-employment
relationship with a professional employer organization (PEO) might be the best solution.
What is Co-Employment?
The National Association of Professional Employer Organizations (NAPEO) defines co-employment as the
contractual allocation and sharing of employer responsibilities between a PEO and its client.
Workers are technically employed by two separate entities:
How Co-Employment Works
1. The business owner (client employer), who controls The client employer maintains control of all
their daily duties and core job functions business decisions and operations while the
co-employer manages all employee-related
2. The PEO (co-employer), who handles personnel- aspects of business operation (wage and
related functions (i.e. –payroll, benefits, HR, workers’ benefit administration, I-9s, W-2s, etc.).
compensation, etc.)
Co-employers do not supply a workforce; they supply services and benefits to a client employer and its existing workforce.
Why Co-Employment is Essential to HR Outsourcing
Business owners who align with a PEO in a co-employment relationship transfer a substantial portion of the risk and
responsibilities associated with employees to the co-employer.
The structure of the co-employment relationship allows the PEO to offer client employers:
Better benefits and benefit options.
Joining a larger group for health insurance bids, retirement plans, and even workers’ compensation, generally
allows client employers to offer more extensive and less expensive benefits. Additional perks such as tuition
reimbursement or adoption assistance may also be offered. A comprehensive employee benefit package can
help attract and retain top talent, and client employer liability can be reduced when a co-employer assumes
the risk associated with offering health plans.
Freedom from wage and employment tax responsibility.
Freedom from the responsibility of reporting, collecting and depositing taxes with state and federal authorities.
All taxes are filed under the co-employers Employer Identification Number (EIN), which is also known as a
Federal Tax Identification Number.
Assistance with workers’ compensation coverage and claim management.
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3. How Co-Employment Relationships Benefit Businesses
Business owners who outsource HR benefit from the following:
Access to better health and retirement benefits.
A PEO aggregates small companies and rolls them into one big
package, meaning much more favorable rates and treatment.
Such a scenario often means business owners can offer a wider
range of benefits to workers at a much better price.
Freedom to focus on core business issues.
A business owner’s time is valuable, and better spent attending
to tasks related to growth and profitability.
Reduced payroll and accounting costs.
Companies that enter into a co-employment relationship benefit from a decrease in the cost of employer
payroll processing and related accounting costs.
Monitored compliance of federal and state regulations.
State and federal regulations change and are re-interpreted regularly. A co-employer helps monitor
compliance and frees business owners from constant vigilance.
Professional employee handbooks and internal employee communications.
A company’s employee handbook is a resource outlining expected and unacceptable behaviors for its staff.
A poorly compiled and/or incomplete handbook is not only unprofessional; it can create legal liabilities as well.
Workers’ compensation management.
Many business owners fear workers’ compensation claims and lack the knowledge to navigate the process. But they
are also notorious for wrong reactions. After John Doe gets hurt and files a claim they decide that John is lazy and
should’ve been fired three years ago and fire him. But firing John doesn’t stop the claim. And now John may file a
lawsuit against the company for unlawful retaliation.
Professional benefits administration.
Employee benefits are complicated, and staying in compliance with federal laws such as the Health Insurance
Portability and Accountability Act (HIPAA) adds to the challenge. Professionals who administer benefits on a daily
basis ensure that all laws and industry best practices are followed.
Access to employee and management training programs.
Well-trained workers are a boost to your business. Training programs help business owners maximize their
human capital. Many PEOs offer such training programs that may not be otherwise available to client companies.
Recruiting assistance.
Finding job candidates who fit both the position and company culture is extremely important. Professional
recruiters are experienced in identifying and selecting the ideal hire the first time.
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4. Ability to compete with larger firms for employees and business.
With co-employment, business owners have access to benefits typically only offered by large companies.
Risk management for employers.
There will always be inherent risks in entrepreneurship. A co-employment scenario best mitigates human
capital risks by providing a way for employee-related issues to be handled appropriately and legally.
Assistance with employment-related liabilities.
A co-employer has a vested interest in keeping your business compliant and assisting with the defense of
employment-related claims that may arise.
Access to seasoned HR professionals.
Expecting one person to understand all of the laws and intricacies associated with HR is unrealistic. A
good PEO is made up of knowledgeable professionals who deal with HR-related issues on a daily basis.
Reduced employee turnover.
Employees who are happy with their work environment, pay, and benefits are likely to remain with their
employer long-term.
Common Misconceptions About Co-Employment Relationships
Loss of control over the business.
Though many business owners opt to utilize the expert recruiting assistance a PEO can provide, hiring
and firing decisions remain their sole responsibility. The co-employer can “fire” an employee from its
co-employment relationship, but not from the business itself.
Worry that employees may not embrace a
co-employment situation.
There is minimal, if any, disruption to employees when a
co-employment relationship is established. They will see
that they are being paid by the co-employer and not the
client employer, but will likely appreciate the greater depth
and breadth of benefits offered by the co-employer.
Concern that workers will be considered
Costs
“temporary” or non-permanent.
Unlike employee leasing, a co-employment relationship
involves employees with two legally separate employers.
The client employer manages their job tasks, while the
co-employer oversees and manages their personnel,
payroll and benefits issues.
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5. Worry that the client employer’s existing HR staff will be terminated.
Co-employers often align with existing HR departments to provide much-needed expertise in areas
where they may fall short. External resources can prove invaluable when client employers are faced with
high-risk HR situations.
How to Determine if Co-Employment is Right for Your Company
If your business could benefit from the following, then a co-employment relationship would likely be
beneficial to you:
Better benefits.
A comprehensive benefits package can help you attract and retain top talent.
Access to expert training on best practices and compliance.
Ignorance is not an excuse for non-compliance.
More of your personal time and attention.
Each moment spent on anything but core business
operations is a moment that would be better spent
growing your business and generating revenue.
Decreasing administrative responsibilities
increases productivity.
Expertise.
You are an expert in your field, and PEOs employ people
who are experts in theirs. Lack of HR-specific knowledge
can lead to costly mistakes.
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6. Things to Consider When Selecting a Co-Employer
1. The financial strength and security of the candidate company.
Does the co-employer have a demonstrated history of adherence to the industry’s professional
performance practices, including responsible financial management of its business? Verify that
their financial statements are independently audited by a CPA; their risk management practices
have been independently certified; and their operational, financial, and ethical practices have
been independently accredited.
2. Their commitment to customer service.
Meet the people who will be serving you. Some companies charge extra to speak with a live representative,
while others utilize call centers and expect you to speak with a different person each time you need help. A
dedicated service team can be priceless.
3. The breadth of their benefit plan options.
A co-employer whose health plan centers around a state-specific provider won’t work if you have employees
in other states or plan to expand your business.
4. Their client and professional references.
5. The company’s administrative and management expertise and competence.
What experience and depth does their internal staff have? Are they familiar with the laws governing your
city and state?
6. How employee benefits are funded.
Is the co-employer fully insured or partially self-funded? Who is the third-party administrator (TPA) or carrier?
Is their TPA or carrier authorized to do business in your state?
7. How employee benefits are tailored.
Determine if they fit the needs of your employees. Does the client employer have input into HR policies?
Can plans and policies be customized?
8. The fine print.
Are the respective parties’ responsibilities and liabilities clearly laid out? What provisions permit you or the
PEO to cancel the terms of the contract? Does the company carry professional liability insurance and what
coverage (if any) will you gain via the co-employment relationship?
As labor laws, tax laws, and healthcare reform continue to change at a rapid pace, it can be
difficult for business owners to keep up. Establishing a co-employment relationship with a
reputable PEO may be the greatest investment you can make toward shielding your company
from legal issues and realizing success.
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7. About Insperity
InsperityTM, a trusted advisor to America’s best businesses for more than 25 years, provides an array of human resource
and business solutions designed to help improve business performance. Insperity Business Performance Advisors
offer the most comprehensive Workforce OptimizationTM solution in the marketplace that delivers administrative
relief, better benefits, reduced liabilities and a systematic way to improve productivity. Additional offerings
include MidMarket SolutionsTM, Performance Management, Expense Management, Time and Attendance,
Organizational Planning, Recruiting Services, Employment Screening, Retirement Services, Insurance Services
and Technology Services.
To find out more or learn how
Insperity can help your company,
call us at 800-465-3800.
Visit us at Insperity.com
The information contained in this document is for general, informational purposes only and is not intended to be legal
advice. This information is not a substitute for the guidance of a professional and should not be relied upon in reference
to any specific situation without first seeking the advice of a qualified HR professional and/or legal counsel regarding
applicable federal, state or local laws. Insperity and its employees make no warranties, express or implied, and make no
judgments regarding the accuracy of this content and/or its applicability to a specific situation. A reference or link to
another website is not an endorsement of that site or service.
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