Understanding Co-Employment Benefits for Small Businesses

February 28, 2023
Understanding Co-Employment

Understanding Co-Employment

Running a small- to medium-size business (SMB) requires a lot of time, effort and resources. It can be difficult to navigate, especially as your workforce grows. To help you get the most out of your efforts, it may be beneficial to enter a co-employment relationship.

What is Co-Employment?

Co-employment is a relationship between a business and a professional employer organization (PEO) where employment-related responsibilities are outlined in the contract. The relationship is solidified through a contractual agreement, usually with a client service agreement (CSA). The result is that the business’ workforce is considered to be employed by two separate entities, the business owner’s company and the PEO.

Although business owners maintain control of the business operations, goals, and day-to-day functions, the PEO helps handle more HR-related tasks. This can include things like talent management strategy, payroll processing, access to benefits, administrative tasks, and more. The scope of the responsibilities for each party is fully outlined in the CSA based on initial handlings.

Benefits of a Co-Employment Relationship

Entering a co-employment relationship has several benefits, especially for SMBs. In addition to alleviating certain responsibilities, you’ll also provide your workforce with multiple benefits that can help improve retention rates and overall employee satisfaction. This, in turn, may impact productivity, engagement and more. Some of the most compelling benefits of a co-employment relationship include the following.

1. Simplified Payroll Processing

One of the biggest benefits of co-employment is how it affects payroll processing. Typically, in this type of relationship the PEO would assume the primary responsibility for processing payroll, reporting wages and dealing with payroll taxes. Every PEO has different processes for this partnership, so it’s important to discuss the details with them in advance, but co-employment will help keep your payroll taxes compliant in regard to this sector of your business.

2. Access to Big-Company Benefits

Part of running a business means providing your employees with access to a range of benefits. While traditionally, this includes health insurance and options for retirement planning, SMBs may not have access to the same caliber of benefits as larger companies do. Co-employment allows you to take advantage of the PEO’s collective strength, as they may have the leverage to provide access to many of these big company benefits that are usually out of reach or too expensive on your own. During co-employment, this means that the PEO holds the responsibilities of benefits plans.

The co-employment relationship also provides you with the opportunity to offer additional benefits that can help boost the employee experience. This may include things like dental and vision coverage, comprehensive retirement plans, auto and home policies, commuter benefits and more all without having to deal with negotiating rates with the carriers. PEOs may also offer unique benefits, for example, TriNet is one of the only PEOs to offer adoption assistance and education assistance payroll services and administration.

3. HR Compliance Expertise

One of the most difficult things that small business owners need to navigate is staying compliant with employment requirements. While there is no such thing as human resource law, trying to navigate the various local, state and federal employment laws and regulations can seem like an impossible task. There are thousands of different HR laws and industry specific regulations—all of which can change quickly. During co-employment, a PEO can help provide you with HR compliance expertise.

4. Strategic HR Support

When you begin a co-employment relationship, you’ll gain access to HR specialists who understand how to help you strategically plan for long-term success. However, working with a PEO does not mean that your internal HR team will be replaced. Instead, they’ll work together to make a plan that will help you with scalable, sustainable growth. HR support through co-employment can include things like help with creating long-term plans, designing employee performance reviews, creating an employee recognition program, conducting employee experience surveys and more.

5. Talent Management Strategy

Co-employment provides your SMB with attractive benefits and can help enhance your overall employee experience. This is extremely beneficial in regard to talent management and employee retention. A PEO can help your business stand out from the competition and attract top talent within your industry. They can also provide comprehensive support during the hiring process, onboarding, training and long-term performance management.

6. Multi-State/Multi-Location Support

Every state and even localities operate differently, so it’s important to make sure that you’re acting in accordance with your location and the location of your employees. Co-employment offers multi-state or multi-location support to help with risk mitigation and location-specific benefits. This can help simplify your payroll tax reporting and lower the risk of penalties or fines.

Common Misconceptions About Co-Employment

Although the benefits are far-reaching, business owners remain wary about co-employment relationships. This is due to the various misconceptions that are circulated about the partnership. Some of the most common misconceptions include the following.

Business Owners Have to Relinquish Control of Operations

When you enter a co-employment relationship, you’re still in complete control of your day-to-day business operations. The partnership is only meant to act as support in areas that you may need HR specialists. In fact, working with a PEO may give you more control over your business decisions, as you’ll have more time to focus on your goals and core job functions. You can define some of the parameters of the relationship ahead of time to fit your needs, so you’re in control of things from the start.

Existing HR Professionals Will Be Replaced

Although the core values of co-employment lie in human resource support, it doesn’t mean that your current employees will be replaced. On the contrary, PEOs are there to support your HR department in order to provide further details or expertise in the areas you need. This simply enhances your department, not replaces it. As your business grows, you’re still welcome to hire new internal HR members to join the team.

Employees Will Feel Uneasy About the Relationship

Some business owners may think that employees will view co-employment in a negative light, as they may get the idea that they’re becoming temporary or seasonal employees. Co-employment can provide your employees with access to benefits, a stronger company culture and a better employee experience overall. This, in turn, can help strengthen retention and may even boost productivity levels over time.

Employees are No Longer Part of the Company

SMBs may think that, since a PEO takes over certain aspects of employee management, they’re no longer a “part of the company.” Your workforce is still legally a part of your company, but the responsibility of administration is shared in co-employment. PEOs are not there to dictate who does what within their job, but to enhance employee experience within your organization.

How to Avoid Co-Employment Risks

Although a primarily positive relationship, co-employment does pose some risks if either party isn’t careful. Generally, the benefits do outweigh the risks and many of the downsides can be avoided with proactive planning and checking credentials. Some of the best ways to avoid co-employment risks are as follows.

Work with a Reputable PEO

Partnering with a reputable PEO that has experience in co-employment will help you navigate the intricate processes and procedures involved according to local, state and federal employment regulations. This includes how to work with independent contractors or temporary, part-time or full-time employees. Experienced PEOs understand how to help co-employers comply with employment related requirements in order to mitigate penalties and fines. This will help you be prepared while still providing your workforce with additional benefits.

Check for the Proper Certifications

Always work with a professional employer organization that meets the necessary requirements and certification standards with the IRS and the Employer Services Assurance Corporation (ESAC). This will include thorough background, financial and reporting requirements and tends to result in the title of a certified PEO (CPEO).

Ask for References from Current Clients

Another way to help mitigate co-employment risks is to ask your prospective partner for references from current clients. This will give you an opportunity to learn how they operate prior to making any commitments. Asking current clients for references is another good way to safeguard your relationship. In doing so, you’ll gain first-hand knowledge on how the business operates in regard to working with clients and customers.

Although there are several misconceptions about co-employment, it’s a great way to help support your growing business without over-spending on internal teams and out of reach benefits. To help you make the most out of your efforts, TriNet offers comprehensive HR services. Through the combination of expert guidance, risk mitigation strategies and headache-free payroll processing, you’ll gain an HR team committed to your growth and peace of mind. Contact us today to learn more about how we can help you strengthen your strategic plans and support your growth.

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A TriNet subsidiary is classified as a Certified Professional Employer Organization by the IRS.5.