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What is a Co-Employment Relationship?

Updated: Apr 13, 2022

A growing trend among small businesses is to outsource HR functions to another company. When looking for outsourced HR options, it can be overwhelming to shop around for an HR provider, especially when there are so many. That’s why more and more small business owners are choosing to partner with a Professional Employer Organization (PEO) for their HR needs. If you do decide to work with a PEO, like Cornerstone, it’s important that you understand how a PEO operates.

Aside from offering more services than traditional outsourced HR firms, PEOs are also unique by having a co-employment agreement with their clients.

What is Co-Employment?

Co-employment can be described as the contractual client service agreement (CSA) that allocates certain responsibilities between the PEO and the client company according to NAPEO, the governing body of all PEOs nationally. The PEO will assume responsibility for some employment related functions like processing payroll, administering employee benefits, and securing workers’ compensation coverage just to name a few. As the business owner, you would still be responsible for the day-to-day operations including the hiring or firing of employees, business operations, and financial decisions. A PEO just acts as an extension of your HR team. Each client service agreement may vary from client to client along with the services the PEO is responsible for.

Advantages of Co-Employment

There is a multitude of benefits to co-employment that could have a positive impact on your business and those working for you. This type of arrangement is beneficial to companies that want to mitigate some of the costs and liability associated with being an employer. Using a co-employment agreement also gives business owners and executives more time to focus on growing their business instead of human resources. Also, when joining a PEO, you get access to experienced professionals and software solutions to keep up with regulatory changes and employment trends which helps clients remain competitive within their industries.

Below is a list of other benefits when joining a PEO’s co-employment agreement:

Comprehensive Payroll Solutions

Small business owners who are having trouble managing time or don’t have the know-how to effectively run payroll can benefit tremendously from a PEO co-employment relationship. PEOs may assume responsibility for administering payroll on behalf of their clients. This includes calculating wages, deductions, paying employees, and filing employment taxes with the government. Some PEOs also have a time and attendance system to integrate with payroll in order to reduce errors and repetitive data entry tasks.

Fortune 500 Level Benefits

A large selling point as to why so many small to medium sized businesses enter into a co-employment agreement with a PEO is to take advantage of the high-quality, cost-effective health insurance coverage. Smaller businesses are able to get the same benefits as a Fortune 500 company at a much lower cost. Companies in a co-employment relationship join the PEOs group plan. Some PEOs also offer supplemental benefits like dental, vision, medical, retirement savings plans, education reimbursement and more. Aside from supplying the coverage, the PEO also handles enrollment, administration, and the claims process.

Workers Comp Coverage

Aside from it being illegal to operate a business without workers’ compensation insurance, PEO clients also benefit from lower coverage costs and mod rates. Similarly, to employee benefits, PEO clients enter the PEO’s group workers comp coverage policy in order to achieve economies of scale and save clients money. The PEO is responsible for providing coverage and handling any claims that may arise. Some PEOs also conduct safety audits and provide training materials to ensure a safe workplace and limit potential injuries.

HR Support

Businesses that don’t have dedicated HR team or department are a great candidate for a PEO. The PEO acts as an extension of your HR team that provides strategic and administrative support. However, if the employer already has an HR team, they can still use a PEOs other services and leverage their expertise when necessary. PEOs are great for businesses that work across state lines since state labor laws are often everchanging and easy to miss.

Maintain Compliance

Compliance can seem like a game of cat-and-mouse trying to keep up with constantly changing rules and regulations. Entering into a co-employment agreement can provide peace of mind, especially for companies that are not prepared to handle regulatory oversight. PEOs provide a team of compliance experts whose responsibility it is to keep up with changing HR and labor laws. Failing to maintain compliance could cost business owners tens of thousands of dollars in fines and penalties. PEOs are well versed in tax reporting, unemployment claims, workers’ compensation claims, and workplace policies.

Co-Employment Misconceptions

Co-employment is often times confused with employee leasing which are not the same. Employee leasing can be described as an arrangement where a staffing firm provides a business with employees for a temporary time, and after that time is completed, the employees return to the staffing agency. A PEO co-employment agreement is different because a PEO doesn’t provide labor to any of their clients. If the relationship between the PEO and the employer end, the employees remain with the client. The PEO does not control the hiring and firing of employee, how much the employees are paid, or any operational decisions regarding the client’s business. A co-employment agreement simply means the employees fall under the PEO’s EIN to take advantage of group rates and savings.

The Cornerstone Advantage

Cornerstone is rated as one of the fastest growing PEOs in the nation with a proven track record of excellent customer service and expertise in all aspects of human resources. Cornerstone’s services are tailor made to fit the needs of every client regardless of size or industry. Each client will be assigned a personal customer service rep that will serve as a direct line of communication between your business and Cornerstone PEO. Cornerstone also comes equip with a streamlined software solution that reduces errors and time spent doing repetitive tasks. Cornerstone’s software includes features such as time and attendance, data analytics, equipment and inventory tracking, and automated live scheduling. Cornerstone has gained attention as a PEO with boutique and customizable service with the resources of a national PEO.


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