If there’s one thing small business owners don’t need in their life, it’s another buzz word. But, alas, 2020 has rolled around and suddenly folks are talking about the concept of co-employment. Below, we outline what it is, how it can benefit your business, and what you’ll want to consider before you enter into this type of relationship.
What is it?
The National Association of Professional Employer Organizations (NAPEO) defines co-employment as the “contractual allocation and sharing of certain employer responsibilities between the PEO and the client.” If that doesn’t clear it up – and it didn’t for us either! – co-employment basically means that your workers are technically employed by two separate entities: your company and a PEO. As a business owner, you retain much of the control, including determining the course of your company, making all the big decisions – including who to hire and when to hire them – and generally deal with the day-to-day aspects of running the business. In contrast, the PEO handles the personnel-related aspects of your business. They do your payroll and related taxes, manage all of your employee benefits, handle the HR administration, and generally just handle the “people” aspect of doing business!
How do I benefit?
One of the most beneficial aspects of co-employment is you get to hand over the “people” aspect of running a business. Specifically, NAPEO notes that “the PEO assumes specific employer rights, responsibilities, and risks through the establishment and maintenance of a relationship with the workers of the client.” Essentially, you hand over all the HR aspects of your business to the vendor, and we not only carry out those tasks, but we’ll go to bat for you should a problem arise in this domain. For example, at Abel, we have an accountant inspect and certify our payroll so that you can be sure it is correct, that the appropriate amount of taxes and withholdings are removed, and that it satisfies all state and federal requirements – and we’ll handle the whole process should someone claim otherwise!
What’s the catch?
There isn’t a catch here! What there generally is are some misconceptions, which we can address. The first issue/misconception is that by entering into a co-employment agreement, you are somehow giving up your power as a business owner. However, under the co-employment relationship, your PEO or outside vendor only handles the HR functions of your business. The PEO has no say in how you run your business – or even who you choose to hire and what you choose to pay them (unless, of course, you’re paying them under the minimum wage and thus running awry of state and federal laws!) A second concern that seems to come up is who the employees “belong” to, but really a co-employment relationship just means that we handle the administrative burden and there are no changes to the employment status of the employees or even their reporting structure.
How do I do it?
If this sounds like something you want to do, NAPEO notes that once you’ve selected the party you want to enter into co-employment with, you’ll want to go ahead and fill out a client service agreement (CSA). This contract specifically lays out the responsibilities you, as a business owner, are passing on to the PEO. You should do this with each responsibility as a line item and be clear about who has sole ownership and which obligations are shared between the two entities. In general, you can expect to pass over most of your HR responsibilities, but that doesn’t mean that you necessarily will want or need to give up on your in-house HR staff. Rather, a co-employment agreement can dictate which HR functions are handed over and which will stay in-house with your existing HR staff.
Do you have questions about co-employment relationships and CSAs? Give us a call at 609.860.0400 and we’ll be happy to walk you through the process.
