Co-employment
Co-employment is a contractual arrangement in which a professional employer organization (PEO) and its client company each hold defined employer responsibilities for the same employees.
The client company directs the work, decides who is hired, and sets pay. The PEOPEO. A PEO (professional employer organization) is a company that co-employs your employees under a service agreement, while you keep direction and control of the work.Click to open the term performs agreed payroll, tax, and benefits administration under the service agreement. In PEO vocabulary, the people covered are worksite employees, who work at and for the client company. The client company keeps its legal entity and its own EINEIN (Employer Identification Number). An EIN, or Employer Identification Number, is the nine-digit federal tax ID the IRS assigns to a business, in the format XX-XXXXXXX.Click to open the term. A PEO typically files federal employment tax returns under its own EIN for the wages it pays. A mid-year move in or out usually splits the year’s Forms W-2Form W-2. Form W-2 is the annual wage and tax statement you give employees and file with the Social Security Administration, reporting wages paid and taxes withheld.Click to open the term between two filers.
What does a co-employment agreement divide?
Responsibility is allocated by contract, obligation by obligation, rather than transferred wholesale. Where a structure changes who is liable for an obligation, the agreement documents that obligation specifically, per jurisdiction and per tax type. Co-employment is a structure the parties choose and write down, while joint employment is a legal conclusion an agency or court reaches. Signing a PEO agreement does not by itself create joint employment.
| OBLIGATION | TYPICALLY SITS WITH |
|---|---|
| Hiring, discipline, and supervision | Client company |
| Scheduling, pay rates, and the work itself | Client company |
| Payroll processing | PEO |
| Employment tax filing and deposits | PEO |
| Benefit plan administration | PEO |
| Parts of the workers’ compensation and HR program | PEO |
- Third party payer arrangements: Professional Employer Organizations
- 26 U.S.C. §3511, Certified professional employer organizations
General information, not legal or tax advice. Apply current federal and state rules with qualified guidance.