PEO Mythbusters 1: Co-Employment is a Loss of Control

PEO Mythbusters 1: Co-Employment is a Loss of Control

by on 2 Mar, 2022

While the benefits of outsourcing HR functions are overwhelming, many small and midsize business (SMB) owners hesitate to take advantage of them. The key reason is numerous myths that surround collaboration with HR outsourcing solutions.

In this series, you'll learn about the common misconceptions behind the most comprehensive form of HR outsourcing, a Professional Employer Organization (PEO). 

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The most popular myth surrounds the term "co-employment." Many HR leaders and business owners confuse it with "joint employment" that comes with a certain loss of control.

Let's take a closer look at debunking the co-employment myth.

What Is Co-Employment? 

Co-employment is a relationship between two companies that involves sharing certain employment responsibilities. Businesses usually enter a co-employment partnership with a PEO to outsource administrative and employment tasks that include:

  • Payroll calculations 

  • Benefits administration 

  • Employment taxes administration 

  • Managing workers' comp 

  • Handling unemployment claims 

  • HR compliance

The PEO doesn't handle day-to-day management decisions such as hiring and firing employees.

Overall, with co-employment, the company's HR department retains full control of all core HR functions while delegating time-consuming and complex administrative tasks to the co-employer. 

Why Is Co-Employment So Popular? 

Co-employment is a highly convenient outsourcing option for companies of all sizes. It's especially helpful for SMBs with understaffed HR departments and high insurance premiums.

What makes co-employment popular is:

  • PEO files payroll taxes under its FEIN (Federal Employer Identification Number), which allows remitting employment taxes and filing tax returns on the company's behalf. 

  • PEOs use economies of scale to grant you access to Fortune 500 benefits at a reasonable price. In some states, you can also take advantage of the outsourcing partner's lower experience modifier for workers' compensation premiums. 

  • PEOs provide strategic HR support even when you decide to scale and grow your business. 

  • PEOs mitigate risks and responsibilities associated with managing employees. 

You also start working with a team of HR experts for a fraction of the price of hiring new members for your IT department. 

How Is Joint Employment Different From Co-Employment? 

Joint employment is a collaboration between two companies that allows both to have control over employee-related decisions.

For example, an airline works with a staffing company to hire baggage handlers in several airports.

According to the law, both the airline and the staffing agency are the baggage handler's employers. Both companies are responsible for administering proper benefits, paying the employee on time, provisioning employee leave, and more. If something goes wrong, they share liability.

When a company becomes a joint employer, it gains control over employee-related issues of another company.

According to this arrangement, you become responsible for another company's poor employment practices.

For example, an airline hires a baggage handler through a staffing agency. After some time, the handler calls in sick. Instead of giving them a sick day, the agency fires the worker and sends a replacement to the airline. If the handler decides to file a wrongful termination claim, the airline would be just as responsible for handling it as the staffing agency would.

When it comes to the co-employment relationship with a PEO, the joint partnership rules don't apply. The business owner retains full control of employees and decisions related to managing them. 

Myth Busted: Co-Employment Is NOT a Loss of Control 

A co-employment partnership is a convenient arrangement for small and midsize businesses that want to outsource certain HR functions to the experts. By working with a PEO, you retain full control of your employment decisions and have the right to terminate the collaboration at any time.

While you share certain liability with a PEO, it doesn't affect your employment decisions or make you responsible for the related outsourcing partner's actions.

The loss of control that some business owners are wary of comes with a joint employment relationship. It's a completely different arrangement that PEOs don't participate in.

Consider this myth BUSTED.

Mythbusters PEO Edition

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