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Co-Employment 101: What Does it Mean for a Small Business?

by Matt SchoolcraftFebruary 22, 2021 8:00 AM

As a small business owner, you’re always trying to find new ways to make your business simpler, safer, and stronger. Co-employment is one way that employers can not only accomplish these goals, but also save time by leaving HR tasks to the experts.

A co-employment relationship with a Professional Employer Organization (PEO) allows small business owners to outsource key HR functions like payroll and employee benefits. While co-employment can help employers free up their responsibilities, it’s not always clear exactly how this relationship impacts a business. Let’s break down what co-employment means and why it may make sense for your organization.

Two hands shaking over a co-employment agreement between a PEO and a small business.

What is Co-Employment?

The term co-employment refers to the relationship between your company, your employees, and your PEO of choice. The National Association of Professional Employer Organizations (NAPEO) offers a good co-employment definition to describe this affiliation: “The PEO relationship involves a contractual allocation and sharing of certain employer responsibilities between the PEO and the client, as delineated in a contract typically called a client service agreement (CSA).”

In short, businesses partner with PEOs to split up employer responsibilities between the two. This agreement extends far beyond simply helping out the business with HR decisions – a co-employment agreement means that your employees are technically employed by both your company and the PEO. 

While both you and your PEO employ your workers, you still remain in command. Some people avoid co-employment because of misconceptions that you'll lose control of your business. That's simply not true. You get to set the co-employment arrangements in your CSA. While your PEO may be viewed by the state as the employer of record, you have the final call when it comes to critical business decisions. 

Reasons Why Businesses Choose Co-Employment

As we said before, the co-employment relationship opens businesses up to a variety of benefits. The main reason for sharing employer status is that it opens your business up to tools and HR services that you wouldn’t have access to as a small company. Here are five big ways that co-employment adds value to your business.

Greater buying power for benefits

As a small business, you simply don’t have the same buying power that big companies enjoy. Co-employment helps you level the playing field.

The co-employment relationship allows your business to take advantage of economies of scale. PEOs can leverage the collective buying power of all their group health clients. This large employee base means that your PEO can give you a lot more bang for your buck when purchasing quality group health plans on your behalf. 

Co-employment doesn’t necessarily mean that your business’ group is pooled together with all the employees from other companies. Some PEOs build their own plan designs to keep your group separate from the others. That means your company is rated for your own group and you won’t have to settle for less. In turn, you can focus on getting quality, cost-effective plans that are competitive with bigger companies.

Simpler, less time-consuming payroll

In a co-employment relationship, your PEO takes on the responsibility of paying your employees. Every business needs to apply for an Employer Identification Number (EIN) in order to manage their own payroll. Companies in a co-employment relationship agree to have the PEO assume this responsibility under its own EIN.

Changing out the EIN may not sound all that exciting, but it allows you to offload a lot of complicated, time-consuming tasks off your plate. By allowing the PEO to use its own EIN, that PEO is now responsible for more than just passing out paychecks. These other payroll administrative tasks include:

That’s a whole lot of time (and math) that’s no longer your main responsibility. The other benefits of having your PEO handle these tasks is that it can help ensure that all your calculations and filings are both accurate and compliant with payroll guidelines. With a PEO, you know your payroll is being handled by people who were trained to handle these tasks.

Better risk management and workers’ compensation practices

Another way that businesses can benefit from a co-employment relationship is through improved workplace safety and risk management. A PEO can help your company qualify for workers’ compensation discounts and keep unemployment tax rates down, saving you plenty of money and headaches in the future. 

As a co-employer, a PEO may even be able to assume the financial risk of providing workers’ compensation benefits to employees for you. For example, GMS is self-insured in the state of Ohio and can offer potential discounts that still comply with state regulations.

Even outside of monopolistic states, a PEO can help you through means like safety culture and claims management. These processes not only help you create a safer environment for your employees, they also help you save money on workers’ compensation costs. Risk management measures include:

  • Safety training
  • Risk assessments
  • Timely reporting
  • Post-accident investigations
  • Return-to-work programs

Better business alignment

When you enter a co-employment agreement, your PEO acts as more than just a vendor. This relationship means that your PEO is a true partner that is invested in the growth of your company. In turn, a good PEO should do everything it can to drive good, sustainable growth for your business. 

As your company grows, you may need more than just payroll administration or benefits help. The co-employment relationship gives PEOs more reason to care about your business goals and work with you to find ways to grow. A PEO can help you identify ways that you can enable that growth and retain talented employees, including: 

  • Employee recruiting and training
  • Performance management
  • Unemployment claims
  • Human resource audits
  • Wellness programs
  • Telemedicine

In addition to helping you grow when you need to, being co-employed by a PEO also means you have access to experts when you need them. This breadth of resources can help you stay on top of any trends or regulatory changes that can impact your business.

Find the Right Co-Employment Partner for Your Business

Running a small business is no simple task. Small business owners have to maintain a delicate balance between trying to grow their business and manage a litany of critical HR responsibilities. Co-employment gives them the means to delegate those time-consuming tasks to professionals who are invested in the success of your business.

Ready to make your business simpler, safer, and stronger? Contact GMS today about how we can save you plenty of time and headaches through a mutually beneficial co-employment relationship.

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