What is co-employment?
Co-employment is an arrangement between employees and their co-employers. Co-employers typically have shared and separate employer responsibilities such as hiring and firing authority, management and supervision of staff, and administering benefits like group medical, retirement plans and paid-time-off. In a common co-employment relationship, the co-employers are a recipient or workplace employer that manages the business and staff and a Professional Employer Organization, or PEO that handles much of the administrative responsibilities like payroll and benefits administration.
What is the true line and delineation in making employment decisions?
Who hires and fires the employees? While the PEO may reserve a right to hire and fire employees (for the most part to have the ability to insure employees under the PEO’s benefit plans,) the responsibility is most commonly held by the recipient or workplace (client) employer who operates the day-to-day business. A PEO typically supports the client in making employment decisions but rarely exerts control over the staff.
How are raises, assessments, vacation and PTO handled?
The recipient or workplace (client) employer manages these matters with the support of their PEO, who may provide expertise in human resources performance and compensation.
Who is the figure of authority to the employees?
The management of the recipient or workplace (client) employer holds control and supervision over the staff unless otherwise agreed upon. PEO’s don’t typically manage staff, rather they provide the employer services to support them.
What exactly are employers giving up?
Recipient or workplace (client) employers in a co-employment arrangement give up sole custody and responsibility of a number of employer responsibilities. Client employers welcome the opportunity pass on the burdensome tasks of wage and hour compliance, payroll, tax filing and employee administration and the management of benefit plans. Client employers have the best of both worlds-they outsource the administrative workload to the PEO and retain the management and control of the labor component.
How much does it cost?
PEO service fees can vary along with each provider’s scope of services. A typical service fee would range from $100 to $175 per employee per month.
What is the fee structure?
The two most prevalent fee structures that PEOs charge are a percentage of gross payroll or a fixed dollar per employee per month.
What is the length of contract?
Usually 12 months.
What is the exit plan and are there extension options?
60-day notice is common in most contracts subject to any renewal extensions to allow the PEO the time to meet its obligations to properly administer and transition employee benefits.
What is shared liability?
In a co-employment arrangement, both the recipient or workplace (client) employer and the Professional Employer Organization, or PEO, may have shared liability if they both had participated in a particular situation that led to employer liability. The terms of your contract should provide a guideline to these type of events. In some cases the PEO may provide additional insurance to cover the risk of exposure.
Who assumes liability if there is an employee issue?
Your contract should provide guidance on which party, if not both, are liable in an event. In many cases, liability falls on the the party that has the responsibility or control over the employees. Many PEO’s provide coverage for employment practices to protect their client employers in the event of employee litigation.
How does the relationship affect company culture and well-being of employees?
Employees often have positive feedback when their company hires a Professional Employer Organization, or PEO, due to the PEO’s ability to offer better benefits and to help clients to be better employers.
How does onboarding work?
After contracting with a PEO, the client employer sets up their policies and procedures affecting compensation and benefits and begins to provide guidance on its human resources programs and processes. Employees typically go through an online open enrollment where they complete their employee forms and elect benefits like health insurance and retirement plans.
Do they get to pick or interview their PEO representative to make sure it is someone they want to work with?
Some PEO providers do allow for this.
How are temporary or outsourced employees (like warehouse workers or seasonal workers) handled?
This usually doesn’t change until the employee has met the requirements to come on full time.
Who does the W-2 say is your employer?
The Professional Employer Organization, or PEO, is the employer on the IRS form W-2. Some states also recognize the PEO as the employer and allow state employment taxes to be filed and deposited under the PEO’s accounts.
Does the PEO help with recruiting and evaluating?
Typically the PEO provides guidance, training and software on critical HR processes such as hiring and performance reviews. The recipient or workplace (client) employer will retain management control over staff.
What happens to employee data while working with a PEO?
The PEO retains this information in their database behind a firewall. Check with your PEO on their data security and disaster recovery plan.
What happens to company and employee data, benefits, etc. if the relationship is terminated?
As employers themselves, PEOs will hold on to this information as required by federal, state and local regulations (i.e. if their clients have government contracts, etc.)
What are the risks?
Other than the employment risks that client employers faced before they contracted with a PEO, the most immediate risks would be associated with the PEO’s ability to meet its contractual obligations. Examples of these would include filing and depositing employment taxes accurately and timely, providing the proper guidance on human resources compliance and administering employee benefits. To provide businesses with assurance in choosing the right PEO, the IRS does provide a certification for PEOs who go through a stringent and ongoing evaluation of its payroll tax obligations. Other organizations like the Certification institute and ESAC provide credentialing services to PEOs.
Does the PEO operate on behalf of the employees or on behalf of the (client) company?
Although the PEO has a obligation to both parties, its most immediate and contractual obligation is to its client employer.
