If you’re a small business owner considering working with a professional employer organization (PEO), you are probably wondering what the PEO will take care of and what you need to do. As the founder and CEO of one of New England’s premier PEOs, I feel privileged to get to share with you what it is we do. To do that, I’ll first define co-employment and then outline a list of co-employment do’s and don’ts— things you, the client, need to do, what you don’t need to do, and what is considered a shared responsibility with your PEO.
Coemployment—A Brief Definition
In our article, What is co-employment and what is not?, co-employment is defined like this:
Co-employment is a contractual allocation and sharing of certain employer responsibilities between a PEO and the client. Co-employment is a service provided by a PEO—it gives client companies access to a broader spectrum of benefits, insurance, disability, and 401(k) options than they would be able to get on their own.
With co-employment, each party is responsible for certain obligations of employment, and both parties might share responsibility for other obligations and be “an” employer. However, neither party is “the” employer for all purposes. (NAPEO)
Co-employment is best illustrated by a Venn Diagram—with employer responsibilities on one side, PEO responsibilities on the other side, and a shared portion of tasks in the middle. With that visual in mind, here’s a look at each section.
Perhaps the most important thing for an employer to understand about co-employment is that no PEO you partner with is “in the business” of your business. PEOs are experts in helping your business manage complex employee related matters—but only you have your particular business expertise. As such, the PEO you partner with can’t take over any leadership roles in the workplace. It’s up to you to continue to provide guidance, leadership, and vision for your business, and manage the day-to-day operations of your company.
Also, for the most part, the responsibility to handle employee complaints, i.e. a harassment claim, rest with you, the employer. However, in some cases, this co-employment liability can be shared. For example, if a PEO is aware of and begins to manage an incident of workplace harassment, both you and your PEO will likely be held partially responsible.
Unless your contract specifies otherwise, PEOs are typically responsible for the following:
- The payment of employee wages.
- The deduction of federal, state, and local taxes.
- The payment of taxes.
- The payment of specific statutory premiums, including workers compensation. (In some states, workers’ comp is considered the client’s responsibility, but one that can be administered by the PEO. In most states, however, it’s the responsibility of PEO.)
- The remittance of taxes and insurance on behalf of your company. Technically, for certified PEOs (CPEOs) like Genesis HR, the client pays a PEO invoice, and by definition, the taxes included in that invoice are considered paid by the IRS at that point. This is a great example of how, with co-employment, risk transfers to the CPEO, protecting small businesses.
- The administration of benefit programs. In a co-employment relationship, procuring insurance, open enrollment, administering COBRA, and more are all the responsibility of the PEO to handle on behalf of the client.
Responsibilities Shared Between A Business And A PEO
The PEO and the client share certain responsibilities, especially around employer compliance.
As a co-employer, the PEO provides information around state and federal compliance issues that impact you and your business. The PEO representative will communicate the requirements and in many cases provide guidance on how to meet the requirement. However, in some cases, it is up to you take the action to meet compliance. For example, the PEO will likely provide the required state and federal labor law poster but it is up to you to post in your worksite in an area visible to all employees.
More Ways The PEO Model Helps Small Businesses
In addition to the division of responsibilities outlined above, the PEO model actually helps its clients. PEOs give clients the opportunity to participate in more robust benefit plans than they could on their own. (If you’re a 10-person company, you know it’s tough to find a robust plan!)
Those small businesses that partner with a PEO like Genesis get the benefits offerings we have access to—the same is true for dental insurance, vision, etc. With a PEO, you get economies of scale and a better selection for employees.
401(k) retirement plans are another great example: PEO clients can opt-in to a PEO’s 401(k) plan recognized by the IRS. In many cases, participating in such a plan would cost much more for employers to do alone.
Co-employment Do’s & Dont’s: 5 Takeaways
- You do need to be involved in the guidance, leadership, vision, and day-to-day operations of your company.
- You don’t have to handle wages and taxes.
- You do have to manage harassment claims. (Though liability may, in some cases, fall to your PEO as well.)
- You don’t have to come up with benefits on your own. In fact, we’ll help you find plans you might not even be able to access!
- You do need to be well-intentioned. Even the best PEO can’t (and probably won’t) help your business if you’re not interested in treating employees fairly, keeping your workplace safe, or offering benefits plans that are helpful to your team.
It’s time to see how a PEO can work for you.
Genesis HR Solutions partners with small to midsize businesses (10-200+ employees) in the New England region—and we may be a good fit for you, too! A free consultation is the best way for us to answer your questions about PEOs. We’d love to help!