Co-Employment

Co-Employment is a legal arrangement where two employers share responsibilities for the same employee. Typically, this involves a business and a Professional Employer Organization (PEO). In this setup, the PEO becomes the employer of record for tax and benefits purposes, while the client company directs the employee’s day-to-day work.

Co-employment allows businesses to outsource HR functions such as payroll, benefits administration, tax compliance, and workers' compensation, while maintaining control over employee tasks and performance.

Key Facts

• Two Employers: The PEO manages administrative HR functions (payroll, taxes, benefits), while the client company supervises job duties, schedules, and performance.
• Legal and Financial Shared Responsibility: Both entities may share liability for employment-related matters like harassment, wrongful termination, or wage disputes.
• Employer of Record: The PEO becomes the employer of record for tax filings and compliance purposes (e.g., W-2s, unemployment insurance).
• Access to Better Benefits: Co-employment through a PEO can offer employees access to healthcare, retirement plans, and insurance usually reserved for larger companies.
• Compliance Support: Helps ensure compliance with labor laws, ACA regulations, state mandates, and OSHA rules.
• Not the Same as Staffing Firms: Co-employment is long-term and HR-focused, whereas staffing agencies are usually temporary and recruitment-focused.
• Risks Include: Misunderstanding of responsibilities, co-liability in employment disputes, and complex employment law compliance (especially across multiple states).

1. What is co-employment?

Co-employment is when a worker is employed by two separate organizations at the same time—typically a PEO and a client company—who share legal responsibilities.

2. How does co-employment work with a PEO?

The PEO handles HR, payroll, benefits, and compliance, while the client company oversees the employee’s job tasks, work schedule, and performance. This shared arrangement creates a legal employment relationship with both parties.

3. What are the benefits of co-employment?

• Access to affordable benefits packages
• Administrative relief for small businesses
• Help with compliance and risk management
• More time to focus on core business goals

4. Is co-employment legal?

Yes, co-employment is a recognized legal structure in the U.S. when used properly, especially in PEO agreements. However, both parties must clearly define responsibilities to avoid compliance issues.

5. What’s the difference between co-employment and joint employment?

• Co-employment: A formal agreement, usually involving a PEO, where duties are split.
• Joint employment: Often used in staffing or franchise arrangements, where two companies may unintentionally share liability over the same employee.