By Kim Freeman, Director of HR Services, JD
For some business owners, the term “co-employment” is scary. They envision sharing control of their day-to-day businesses with another entity. But the truth is co-employment is far from frightening. Co-employment can be empowering, growth-inducing, and profit-generating. By partnering with a Professional Employment Organization (PEO), such as Resourcing Edge, management can focus on increasing revenue and market share while the PEO co-employer handles administrative tasks such as payroll, benefits, human resources, and more.
Co-Employment versus Joint-Employment
Sometimes there can be confusion about co-employment versus joint-employment. While the two employment types sound similar, there are important legal differences. PEOs offer a co-employment business model that allocates responsibilities between the PEO, as statutory employer, and its clients, the worksite employer. According to the National Association of Professional Employer Organizations (NAPEO), companies that partner with a PEO in a co-employment model have access to more benefits options, risk-sharing in certain employer liability matters, and oversight of 401(k) plans. With co-employment, neither party is “the” employer, rather both are “an” employer.
Joint employment, on the other hand, is when two or more companies exercise some control over the work and working conditions of an employee. As an example, in this model one company might be fully liable if the other company fails to perform a task such as pay wages. Legal determination that companies are joint employers is very complicated.
Several different tests can apply depending on the situation. In fact, determining factors of joint employment differ under the Fair Labor Standards Act (FLSA), the National Labor Relations Act (NLRA), and employee benefits law. There can even be a different standard applied by state laws. Usual factors that are considered in the analysis, however, include whether the company receiving the benefit of the employees’ labor: (i) has hiring authority or input; (ii) pays the workers or determines compensation; (iii) directs employees’ day-to-day work; or (iv) can discipline and fire employees.
Now that you understand what co-employment is, let’s discuss some common misconceptions.
Misconceptions About a PEO Co-Employment Relationship
- “My business decisions will 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 worksite management. A PEO like Resourcing Edge will offer advice as to best practices and compliance to lessen risks, but in the end, decisions on 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 will handle payroll, taxes, benefits, and HR issues.
- “We are too small for co-employment 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 to attract the best talent. Often a PEO can provide affordable benefit options as a result of pooling the employees for more bargaining power. In some states, workers’ compensation rates will also be less expensive for the same reason.
- “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 less, and you can opt for “pay-as-you-go” premiums based on your payroll amount rather than a fixed dollar amount. Other benefits are typically less expensive as well because of the pooled buying power of the PEO.
- “Co-employment will not be accepted by my employees.”
Having a PEO handle administrative-type matters will be a change for your employees. But having dedicated professionals handle 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 that allow for things such as changing tax deductions, revising direct deposit, and adding covered individuals to health insurance.
- “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 do use the partnership to further reduce staff costs, but many keep existing HR staff. Instead of those HR professionals handling administrative type tasks, such as a payroll or benefits enrollment, with the use of a PEO your HR team can focus on more strategic initiatives like retention and training. Also, the HR professionals at the PEO co-employer will work with the onsite team to assist in compliance with best practices and employment laws.
The Truth About Co-Employment
Misconceptions about co-employment abound, but the truth is having a PEO partner can:
- grow your business 7-9% faster;
- result in 10-14% lower employee turnover; and,
- reduce the risk of going out of business 50%.
If you are interested in learning more about a co-employment relationship with a PEO, contact us at Resourcing Edge. Let us show you how we can help you grow your business.
Kim Freeman is the Director of HR Services at Resourcing Edge, and a licensed attorney. The information presented in this article is for informational purposes only and does not constitute legal advice or create a lawyer-client relationship.