Some business owners find the term “co-employment” intimidating because they fear giving up control of their daily operations.

However, co-employment can be beneficial. When businesses partner with a Professional Employer Organization (PEO) like OneDigital Resourcing Edge, they can focus more on boosting revenue and expanding market share. This is because the PEO takes care of critical administrative tasks such as payroll, benefits administration, and human resources management.

Co-Employment vs. Joint Employment: Understanding the Differences 

There is often confusion between co-employment and joint employment. While these two types of employment may sound similar, there are important legal distinctions between them. Professional Employer Organizations (PEOs) offer a co-employment model that divides responsibilities between the PEO, acting as the statutory employer, and its clients, the worksite employer. According to the National Association of Professional Employer Organizations (NAPEO), companies that engage in a co-employment relationship with a PEO gain access to a wider range of benefits options, share certain employer liability risks and have oversight of 401(k) plans. In a co-employment model, neither party is considered “the” employer; instead, both are seen as “an” employer. 

On the other hand, joint employment occurs when two or more companies exert control over an employee’s work and working conditions. For instance, in this model, one company may bear full responsibility if another company fails to fulfill tasks such as paying wages. Legal determinations of joint employment can be quite complex, and different tests apply based on the circumstances. The factors considered in the analysis typically include whether the company benefits from the employees’ work: (i) have involvement in hiring; (ii) handles payment or determines compensation; (iii) directs the employees’ day-to-day tasks; or (iv) has the authority to discipline and terminate employees.  

Unveiling Misconceptions About PEO Co-Employment Relationships 

1. “My business decisions may be questioned or changed.” 

PEO partners have no control over business operations and the decisions made by the worksite employer. Terms and conditions of employment are set by the worksite management. A PEO like OneDigital Resourcing Edge offers advice on best practices and compliance to reduce risks, but ultimately, decisions about how, when, where, and who conducts the business are made by the co-employer onsite. Meanwhile, the employer of record (sometimes referred to as the “statutory employer”) is the PEO, which handles payroll, taxes, benefits, and HR issues. 

2. “We are too small to be eligible for a co-employment relationship with a PEO.” 

PEOs are designed to partner with small to medium-sized businesses. Companies as small as four employees are eligible for participation in most healthcare benefit plans, which many employees seek as a perk of employment. Health insurance and 401(k) programs are among the most sought-after employee benefits and keep your business competitive in attracting the best talent. Often, a PEO can provide affordable benefit options due to pooling the employees for more bargaining power. In some states, workers’ compensation rates will also be less expensive for the same reason. 

3. “My business can’t afford to pay someone to do the back-of-the-house work.” 

Through a co-employment relationship with a PEO, your business can save money. For example, workers’ compensation rates are often lower, and you can opt for “pay-as-you-go” premiums based on your payroll amount rather than a fixed dollar amount. Other benefits are generally less expensive as well because of the pooled buying power of the PEO. 

4. “Co-employment will not be accepted by my employees.” 

Having a PEO handle administrative matters will be a change for your employees. However, having dedicated professionals manage their payroll, benefits, and HR needs will quickly be recognized as a time-saver for them. Many of their needs can be met through employee portals, allowing for tasks such as changing tax deductions, revising direct deposit, and adding covered individuals to health insurance. 

5. “If the PEO co-employer handles HR, then I have to fire my HR staff.” 

Many small to medium-sized businesses don’t have HR staff, and that’s another reason why a PEO relationship makes sense. For those that do, retaining worksite HR is up to each client. Some use the partnership to further reduce staff costs, but many keep existing HR staff. Instead of those HR professionals handling administrative tasks like payroll or benefits enrollment, with the use of a PEO, your HR team can focus on more strategic initiatives like retention and training. Additionally, the HR professionals at the PEO co-employer will work with the onsite team to assist in compliance with best practices and employment laws. 

Revealing the Truth About Co-Employment

Misconceptions about co-employment are widespread, but the truth is that having a PEO partner can provide several benefits: 

• It can help your business grow 7-9% faster (NAPEO). 

• It can result in 10-14% lower employee turnover (NAPEO). 

• It can reduce the risk of going out of business by 50% (NAPEO). 

Ready to learn more about what a co-employment relationship with a PEO can do for your business? Connect with the OneDigital Resourcing Edge team today.