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What is PEO Co-Employment and Its Impact?


In today’s competitive business landscape, companies face numerous challenges when it comes to managing their human resources. From recruiting top talent to navigating complex employment laws, the HR function can be a time-consuming and costly affair. That’s where Professional Employer Organizations (PEOs) come in. PEOs offer businesses an innovative solution known as co-employment, which can help drive growth, success, and save both time and money. 

In this article, we will demystify PEO co-employment and provide you with everything you need to know to make an informed decision for your business.

What is PEO Co-Employment?

PEO co-employment is a strategic partnership between a PEO and a client company. In this arrangement, the PEO becomes the employer of record for the client’s employees, sharing certain employer responsibilities and liabilities. This means that the PEO takes on key HR functions such as payroll processing, benefits administration, risk management, and compliance, while the client company retains control over day-to-day operations and management of their employees.

Falsehoods Surrounding Co-Employment

Co-employment, also known as employee leasing or shared employment, is an arrangement in which a PEO enters into a contractual relationship with a client company to manage certain human resources tasks. Under co-employment, the PEO becomes the employer of record for tax and insurance purposes, while the client company retains control over day-to-day business operations and retains responsibility for the overall direction and management of their employees.

Despite the numerous benefits that co-employment can offer, there are some common falsehoods and misconceptions that surround this arrangement. Let’s debunk some of the most common falsehoods about PEO co-employment:

Falsehood 1: Loss of Control

One of the biggest misconceptions about co-employment is that the client company will lose control over its workforce. In reality, the client company retains full control over hiring, firing, and managing its employees on a day-to-day basis. The PEO’s role is to handle administrative tasks such as payroll processing, benefits administration, and compliance with employment laws. By offloading these time-consuming tasks to the PEO, the client company can focus on strategic initiatives and core business functions.

Falsehood 2: Legal Liability

Another falsehood surrounding co-employment is that the client company will transfer all legal liability to the PEO. In reality, both the PEO and the client company have shared liability in certain areas. The PEO takes on responsibility for employment taxes, workers’ compensation insurance, and other HR-related compliance matters.

However, the client company still maintains liability for its own actions, such as hiring decisions, workplace safety, and compliance with laws and regulations. It’s important for both parties to have clear expectations and a solid understanding of their respective responsibilities to ensure a successful co-employment relationship.

Falsehood 3: Loss of Employee Benefits

Some businesses may be concerned that co-employment will result in a loss of employee benefits. However, this is not the case. In fact, partnering with a PEO can often provide access to a broader range of employee benefits and cost-saving opportunities. PEOs often have the ability to offer competitive benefits packages due to their larger pool of employees, which can include health insurance, retirement plans, and other perks.

By leveraging the PEO’s buying power, businesses can provide their employees with comprehensive benefits that may not have been affordable otherwise.


9 Benefits of a PEO

Visit our ultimate guide to PEOs and learn 9 benefits that a PEO can provide to your business HR.

The Realities of PEO Co-Employment

Co-employment, when a business partners with a Professional Employer Organization (PEO), offers numerous benefits that can drive growth, success, and save time and money. In this blog post, we will explore the reality of PEO co-employment and debunk common misconceptions surrounding this arrangement. By understanding the truth about co-employment, businesses can make informed decisions and leverage the advantages it offers.

Let’s delve into the benefits of co-employment and how it can transform your HR solutions.

1. Streamlined HR Operations:

By outsourcing HR functions to a PEO, businesses can streamline their HR operations and focus on their core competencies. PEOs have expertise in HR best practices, employee relations, and compliance, ensuring that businesses stay up-to-date with changing regulations and minimize the risk of costly HR mistakes.

2. Access to Comprehensive Benefits:

PEOs typically offer a wide range of comprehensive benefits packages that may be more affordable and competitive than what a small or mid-sized business could obtain on its own. These benefits can include health insurance, retirement plans, employee assistance programs, and more. By partnering with a PEO, businesses can attract and retain top talent by offering robust benefits that are typically only available to larger companies.

3. Cost Savings:

Outsourcing HR functions to a PEO can lead to significant cost savings for businesses. PEOs can leverage their buying power and economies of scale to negotiate better rates for benefits, insurance, and other HR services. Additionally, businesses can save on administrative costs associated with payroll processing, tax filings, and compliance.

4. Risk Mitigation:

Employment laws and regulations are constantly evolving, and non-compliance can result in costly penalties and litigation. PEOs stay up-to-date with the latest employment laws and regulations, ensuring that businesses remain compliant. They can also provide guidance and support in areas such as employee relations, workplace safety, and risk management, minimizing the risk of legal issues and lawsuits.

5. Focus on Core Business:

By outsourcing HR functions to a PEO, businesses can free up valuable time and resources to focus on their core business activities. This can lead to increased productivity, efficiency, and ultimately, growth and success.

Is PEO Co-Employment Right for Your Business?

While PEO co-employment offers numerous benefits, it may not be the right solution for every business . It is important to carefully consider your business needs and goals before deciding to engage with a PEO.

One important consideration is the size of your business. PEO co-employment is particularly advantageous for small to mid-sized businesses that may lack the resources or expertise to efficiently handle HR functions internally. However, if your business is larger and already proficient in financing, negotiation, and managing tax and benefits functions, the benefits of partnering with a PEO may be limited.

View and download our infographic showing how a PEO saves you time, money and streamlines communcation for your business.

Another factor to consider is the complexity of your HR needs. If your business operates in a highly regulated industry or has unique HR requirements, a PEO may not be able to provide the specialized support you need. In these cases, it may be more beneficial to work with a specialized HR consultant or firm.

Lastly, it is crucial to thoroughly evaluate the reputation and track record of any PEO you are considering partnering with. Look for a PEO with a strong history of client satisfaction, solid financial stability, and a demonstrated commitment to compliance and ethical business practices.

In summary, while PEO co-employment may not be suitable for every business, it can provide notable advantages for those seeking dependable and secure HR solutions. By partnering with a PEO, businesses gain access to comprehensive HR services, mitigate risks, and concentrate on core operations. PEOs often present opportunities to collaborate with HR departments, enabling them to focus on achieving company-specific objectives, enhancing skills, boosting revenues, and fostering employee engagement to drive greater profits.