Co-employment is the authorized construction that skilled employer organizations (PEOs) and their consumer firms use to share HR obligations.

As with all contractual relationship, it’s essential that every celebration within the co-employment settlement absolutely understands all of the nuances of the association.

Whereas PEOs tackle many duties for his or her consumer organizations, they’re unable to imagine all duties related to being an employer.

Additionally, every PEO could have a personalized method to service supply for his or her shoppers, so you’ll be able to’t assume that you just’re getting the identical providers when evaluating suppliers.

Listed below are 5 co-employment nuances you need to perceive when searching for a PEO companion.

1. Classifying staff

Usually, a PEO will present steering to its shoppers to assist correct worker classifications. However the act of classifying staff (and the implications for potential errors) resides with the enterprise.

Mentioned one other manner, figuring out which people are staff (and obtain W-2s) and that are impartial contractors (who obtain 1099s) is a accountability reserved for the enterprise – not a PEO.


Usually, the classification evaluation requires overview of how the person is paid and what stage of supervision or management, if any, exists in how the work is carried out. A PEO gained’t be bodily current to confirm the character of your staff’ work and subsequently can’t classify your staff for you.

The contractor-versus-employee classification generally is a complicated grey space for a lot of employers. That’s why having a PEO’s steering might be helpful.

Equally, it’s the enterprise’ accountability to appropriately classify staff as exempt or non-exempt, however a PEO will provide its steering that will help you keep away from widespread errors.

If a enterprise is knowingly misclassifying staff, a good PEO will encourage additional overview and assist the enterprise’ efforts to appropriate the classification.

When you depend on impartial contractors, they may fall exterior of your co-employment relationship with a PEO and outdoors of their payroll system. Primarily, you need to pay contract staff by yourself.

2. Wage and hour compliance

Making certain wage and hour compliance is one other accountability that is still with the corporate while you enter a co-employment relationship with a PEO.

PEOs don’t assume accountability for wage and hour compliance as a result of the PEO should depend on what their shoppers report.

Ensure you’re working with a PEO that can give you steering on methods to keep compliant with wage and hour legal guidelines. Whereas the final word accountability stays with the enterprise, assist and steering from a good PEO can assist you navigate widespread pitfalls.

Conditions that may result in wage claims embody staff not getting:

  • Lunch breaks
  • Extra time pay
  • The minimal wage
  • Paychecks on time

3. Payroll taxes

Selecting to go together with an authorized PEO (CPEO) might seem to be a small distinction while you’re evaluating PEOs, however it could put your organization in a way more favorable place when it comes to tax withholding and reporting.

Having earned this IRS-established classification, CPEOs assume accountability for the federal employment taxes withholding, remittance and reporting.

What occurs in the event you companion with a PEO that hasn’t earned the CPEO designation?

If federal employment taxes aren’t paid, the IRS can go after the PEO in addition to your organization for what’s owed, even in the event you already paid the PEO for these taxes.

While you’re evaluating PEOs, don’t overlook the CPEO designation.

To see a full checklist of CPEOs (and different essential info), go to the IRS’ web page on the subject.

4. Single vendor relationship

When you haven’t labored with a PEO but, likelihood is you’ve got a number of HR service distributors.

  • One for payroll
  • One other for time and attendance
  • A advantages dealer
  • A recruiting instrument to trace candidates
  • And so forth

Every has their very own value, gross sales rep, assist line and quirks. And, extra typically than folks wish to admit, these programs don’t combine with each other. Meaning manually coming into knowledge from one system to a different. (Hiya, human error.)

One of many nice perks of working with a good PEO: a single supplier shall be answerable for processing payroll, in addition to offering staff’ compensation insurance coverage protection, advantages, and extra. Many PEOs present built-in programs that work collectively to assist your corporation.

Bundling these providers collectively helps you simplify and save. For a lot of small and medium-size companies, this co-employment nuance — simplicity and peace of thoughts — might be price its weight in gold.

Individuals who worth excessive levels of management is likely to be disenchanted to be taught that they’re giving up the power to barter for every of those providers individually within the open market so long as they’re with the PEO.

5. Employees’ compensation expertise ranking

Chances are you’ll surprise what’s going to occur to your expertise ranking for staff’ compensation (i.e., the quantity of loss that you just expertise in comparison with the quantity of loss that related insured firms have) while you be part of or go away a PEO.

For instance, in the event you be part of a PEO, and you’ve got expertise ranking, and then you definitely wish to go away the PEO in some unspecified time in the future, do you begin over? Or do you get to take your good expertise ranking with you while you return into the open market?

The reality is, it will depend on the PEO.

Some PEOs observe losses individually by consumer and report these to your state. If a consumer leaves, the enterprise takes their expertise ranking with them.

Different PEOs might not do this, which might be detrimental if the corporate inherits the PEO’s expertise ranking and that ranking is worse than that of the person firm. That’s why it’s essential to get into the appropriate co-employment relationship.

Threat mitigation for small companies

In a co-employment relationship, you share sure HR-related obligations with the PEO. Learn your consumer service settlement carefully to grasp precisely which protections you obtain and which liabilities will stay with you.

On the finish of the day, becoming a member of the appropriate PEO can strengthen your place as an employer.

To be taught extra about how partaking with a PEO works, together with the varied co-employment nuances, obtain our free e-book: Your no-nonsense information to co-employment.