Co-employment: Definition, Pros, Cons, and Its Implications
Tarmack LogoRequest a demo

What is Co-employment?

Back to Lexicon

Co-employment refers to a partnership between two separate entities as stated under –

  • A Professional Employer Organization (PEO) / HR outsourcing firm
  • The client company

In a co-employment setup, the PEO takes on the role of an employer of record for certain employees, while the client company remains the worksite employer. 

The key distinction here is that the PEO manages administrative tasks, such as payroll, benefits, and risk management, while the client company maintains control over daily job responsibilities, work hours, and performance expectations.

The purpose is to allow businesses to outsource certain human resources functions while still maintaining control and oversight of the employees

Did you know?

Tarmack helps you easily hire international talent as your full time employees without opening international subsidiaries. Find out more about our Employer of Record services

Learn More

What are the Primary Benefits of Co-employment?

The benefits of co-employment include the following –

HR Expertise

By partnering with a PEO or staffing agency, businesses can gain access to specialized HR expertise and support. 

These organizations are well-equipped to handle payroll administration, employee benefits, compliance with employment laws, workers’ compensation, and other HR-related tasks. This allows the client company to focus on its core activities, rather than getting bogged down in HR administrative tasks.

Risk Mitigation

Through co-employment, the responsibilities and liabilities associated with employment are shared between the client company and the PEO or staffing agency. 

This can help mitigate risks and potential legal issues, as both parties assume their respective responsibilities related to workforce management. 

This shared responsibility helps protect the client company from potential HR-related issues, such as payroll errors, compliance violations, or employee lawsuits.

Cost Savings

Co-employment can lead to cost savings for businesses. This is because PEOs and staffing agencies can leverage their collective purchasing power to secure better rates for employee benefits, such as health insurance, retirement plans, and workers’ compensation coverage. 

Additionally, by outsourcing HR functions, businesses can save on the cost of maintaining an in-house HR team and infrastructure.

Flexibility and Scalability

Co-employment offers businesses the flexibility to quickly scale their workforce up or down, depending on their needs. 

With the support of a PEO or staffing agency, the process of hiring, onboarding, and terminating employees becomes more efficient and streamlined. This can be particularly advantageous for businesses with fluctuating staffing needs or those experiencing rapid growth.

Employee Support and Development 

Co-employment often includes access to additional employee resources and benefits. 

PEOs typically offer a range of HR services, including training and development programs, employee assistance programs, and access to technology platforms. This can enhance the overall employee experience and promote professional growth within the organization.

Focus on Core Competencies

By outsourcing certain HR functions to a PEO for staffing agencies, businesses can focus on their core competencies and strategic initiatives. 

This allows them to concentrate on activities that directly contribute to their business goals, such as product development, customer acquisition, and revenue generation.

What Should You Consider When Going for Co-employment?

When considering a co-employment arrangement, it’s essential to weigh several factors to ensure that the partnership works well for your organization, your workforce, and your business goals. Here are key considerations-

1. Selecting the Right Co-Employer

Choose a reputable Professional Employer Organization (PEO) or co-employment partner with a proven track record. Research their history, ask for references, and make sure they have experience in your industry.

2. Understanding of Responsibilities

Clearly define what the co-employer will be responsible for, such as payroll, benefits administration, tax withholding, compliance with employment laws, and workers’ compensation. Know your responsibilities as well.

3. Compliance with Laws and Regulations

Ensure the co-employer is well-versed in employment law and workplace regulations, especially if you operate in multiple states or countries with different legal requirements.

4. Control over the Workforce

Determine how much control you’ll maintain over your employees. While a co-employer can manage HR tasks, your organization should retain control over day-to-day operations, workplace culture, and employee management.

5. Integration with Company Culture

Ensure that the employees provided by the co-employer will fit into your company’s culture. Establish expectations for these workers to integrate seamlessly with your existing team.

6. Cost Analysis

Evaluate the costs associated with co-employment. This includes the fees paid to the PEO and any other potential expenses. Compare these costs against the potential savings from reduced HR operations and economies of scale in benefits procurement.

Now you can easily hire & employ international remote talent in full time jobs without opening international subsidiaries. Find out more about Tarmack's Employer of Record services.

Get Started

7. Employee Benefits

Understand the quality and range of employee benefits the co-employer will offer. Benefits are a crucial factor in attracting and retaining talent, so they should be competitive and align with your workforce’s needs.

8. Risk Sharing and Liability

Scrutinize how risks and liabilities are shared. Co-employment introduces shared legal responsibilities, and it’s essential to know how the co-employer will support you in case of legal challenges or disputes.

9. Long-term Business Goals

Align the co-employment arrangement with your long-term strategy. How does the partnership fit into your organization’s growth plans, and how flexible is the arrangement if your business needs change?

10. Contract Terms

Review the contract terms carefully with legal counsel to ensure that you fully understand the agreement. Pay attention to the length of the contract, the services including the costs, the termination clauses, and any other significant terms.

11. Communication and Collaboration

Check the mechanisms in place for ongoing communication and collaboration. You’ll want a co-employer who is responsive and can work effectively with your team to handle any issues that arise.

12. Exit Strategy

Even if you don’t anticipate the need to end the relationship, have an exit strategy that outlines how you will transition away from the co-employment arrangement, if necessary, without disrupting your business operations.

Seamlessly Establish and Manage the Co-employment Arrangement with Tarmack

We at Tarmack, have expertise in managing co-employment relationships and can assist businesses in finding the right staffing agency or PEO to partner with. 

We can help you handle the complexities of co-employment, provide guidance on legal and compliance issues, and also ensure that the partnership aligns with your company’s goals and needs. 

A truly global HR platform with everything you need to build, grow & manage a global team.

  • bestTalentIdentifying & recruiting the best talent
  • payrollPayroll with full compliance across 100+ countries
  • agreementsEmployment agreements as per local laws
  • contractorContractor invoices & time management
  • onboardingSmooth remote onboarding of employees
  • immigrationImmigration & mobility services around the world
Find Out More