Home - Payroll Management & Administration, Small Business - Is Co-Employment a Loss of Control?

Is Co-Employment a Loss of Control?

Is Co-Employment a Loss of Control?

The co-employment relationship has countless benefits and few downsides, yet many companies are afraid to take advantage of this arrangement because they fear they will "lose control" of parts of their business. 

Fears about co-employment often result from confusing the concept of co-employment with the legal designation of "joint employer." By improving your understanding of both concepts, you can learn more about the advantages of co-employment and make a decision based on the current needs of your business. 

Co-Employment: Defined

Co-employment is an agreement between companies to split the employer's responsibilities. Many times, employers must take on many responsibilities that take up unnecessary time in their day, from handling benefits information to managing time tracking responsibilities. A co-employer can take on those responsibilities, freeing the initial employer's team up to handle other, job-related requirements. 

At no point does the client business give up any responsibility they do not want to give up. If there are specific non-payroll responsibilities that you want to keep, you can maintain those in-house. You can customize those services according to the specific needs of your business--and you never have to accept a service that you do not want. 

Why Choose Co-Employment?

Co-employment is used by PEOs so that they can give client businesses access to their master plans for healthcare, benefits, and retirement benefits. These master plans usually represent substantial savings over what the client business can get on their own, since individual plans are often much more costly. 

Co-employment also allows the PEO to process a client business's payroll and remit taxes on the client's behalf. As a result, the PEO can take over those responsibilities for the client business, allowing greater overall freedom for the client business. Turning these responsibilities over to a PEO can also make it easier for the client business to ensure accuracy and effectiveness in those tasks.

By choosing this method, the PEO simply becomes the "employer of record." All this means is that taxes are filed under the employer identification number (EIN) of the PEO instead of the EIN of the client business. The client business remains in control of those employees and can make all decisions about hiring and firing those individuals. 

Rights Retained by the Client Business

Many client businesses worry that they must give up control in order to receive the benefits of working with a PEO. In reality, however, client businesses retain all their usual rights. 

Client businesses decide whether to continue the co-employment relationship. At any point, your business can choose to discontinue that relationship and go back to taking care of those responsibilities on your own. You are not bound into a co-employment relationship, especially if you discover that the relationship is no longer working for your business. 

Day-to-day management is still entirely in the hands of the client business. From decisions about operations to the goods and services you want to offer, you still make the choices with regards to your business. The co-employment relationship is a partnership dedicated to features like your payroll and your benefits package. 

The PEO does not have a say in your ability to hire or fire employees, expand your business, or choose to offer or not offer specific benefits to your employees--but the company can make it easier for you to offer specific benefits packages that will help you retain and attract the top talent in your field. 

PEO Co-Employment is Not Joint Employment

A PEO does not qualify as a "joint employer." In a joint employment arrangement, two separate businesses share all liability and decision-making with regards to a specific employee. In a joint employment arrangement, for example, the joint employers might:

Share responsibility for the employee's salary. Joint employers may both pay the employee’s salary. In a co-employment relationship, the employee's actual employer is the entity that pays for the employee's services. The PEO just makes sure that payroll goes out on time and is not liable for employee wages. 

Have joint responsibility for making decisions about the employee's continued position in the company. Joint employers might work together to decide whether to promote an employee or when the time comes to fire an employee. In a co-employment scenario, however, the PEO has no right to decide how the client business operates or chooses to manage its employees. That means you retain full control over your employees. 

Share liability for training and information. Joint employers may each have separate training and informational requirements for employees. While a PEO can help provide the training your employees need, the PEO will not make decisions about what specific training employees require. 

How to Know if You Are a Joint Employer

In 2020, the "test" for a joint employer asks four key questions:

  • Do both "employers" have equal rights to hire or fire the employee?
  • Do both parties share control and supervision over the employee's schedule?
  • Do both parties control the employee's rate of payment?
  • Do both parties manage employment records?

If you cannot answer "yes" to all four of these questions, you do not have a joint employment relationship. Managing this misconception can help you make more effective decisions about a co-employment relationship and how it has the potential to impact your business. 

Co-Employment is Safe

Co-employment with a PEO is a safe way to reduce the costs of benefits and the time lost doing paperwork without having to lose any day-to-day control over your company and employees. It is not a loss of control; rather, it is handing over the responsibility for tasks you do not want to perform on your own or do not have the means to perform in-house. To learn more about the options we can make available for your business and how this relationship can continue to prove beneficial over time, contact us today.

Subscribe to the Blog | Zamp HR


Payroll Management & Administration, Small Business