In the Professional Employer Organization (PEO) industry, there are typically two types of arrangements – Co-Employment, and ASO (Administrative Services Only). Both assist small and mid-size employers with their human resources tasks and responsibilities, but approach the relationship from two very different directions. Our next few posts will discuss the difference between these service-models and which one may make more sense for your business.
Co-Employment
Co-Employment is the relationship created between a PEO and its clients, wherein the PEO assists its clients in reducing the risks and responsibilities of being an employer. Co-Employment is defined as the contractual allocation and sharing of employer responsibilities between the PEO and the client. The PEO assumes the role of the Administrative Employer and is recognized as the legal Employer-of-Record. The PEO takes on numerous administrative, and strategic, functions for their clients. These functions include:
- Paying the Employees and Filing Payroll Taxes
- Issuing Workers’ Compensation Insurance Coverage
- Providing Employee Health Insurance Coverages
- Training Management and Staff
- Implementing Risk Management and Safety Plans
- Providing Employment Consulting and Compliance
- Managing Administrative Human Resource Functions
The client maintains the role as the Administrative Employer and continues to manage and oversee all day-to-day activities relating to their internal operations. They provide worksite employees with the tools, instruments and place to work, and continue to oversee the hiring, firing, establishment of wages, and direction of the workforce. The PEO assists in ensuring that worksite employees are provided with a worksite that is safe, conducive to productivity, and operated in compliance with employment laws and regulations. In addition, the PEO provides worksite employees with workers’ compensation insurance, unemployment insurance, and a broad range of employee benefits programs.
Removing Distractions and Reducing Overhead
By providing these services, PEOs enable their clients to concentrate on their core business without the challenges and distractions associated with the “business of employment.” As a result, PEOs enhance the profitability of their client companies. The PEO’s economies-of-scale enables each client company to lower employment costs and increase the business’s bottom line. The client can maintain a simple in-house HR infrastructure or none at all by relying on the PEO. The client also can reduce hiring overhead. Costs related to the monitoring of, and compliance with, employment laws are reduced, as are the often significant costs of failure to comply with such laws. In addition, the PEO provides time savings by handling routine and redundant tasks for its clients. This enables the business owner to focus on the company’s core competency and grow its bottom line.
In our next post, we will discuss an alternative to co-employment, known as “ASO” – Administrative Services Only. Most of the same services, without creating a co-employment relationship.
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