“Co-employment” and “professional employer organization” often get bandied about interchangeably in conversation, understandably leading to some confusion. They seem to suggest the same type of arrangement, so is there a difference? What is it? Behold:


Co-employment is the contractual agreement between an employer and professional employment organization (PEO) stating that the PEO will be sharing employment responsibilities with the employer. In this arrangement, employers are outsourcing their employee management tasks, but NOT outsourcing the employees. The PEO hires the company’s employees and becomes the employer of record for tax and insurance matters. The PEO handles recruiting, staff training and development, risk management, employee benefits, payroll and tax reporting, claims management, and workers’ comp.

As co-employers with their clients, PEOs might:

  • Pay wages and employment taxes of employees
  • Negotiate employee group insurance benefits
  • Handle health benefits, workers’ comp claims and unemployment insurance claims
  • Report, collect and deposit employment taxes with state and federal agencies
  • Handle training and development

In a co-employment arrangement, staff is technically employed by both the business owner (the PEO client), who controls daily duties and core job functions; and the PEO (or co-employer), who manages personnel-related functions, services and benefits to its client employer and existing workforce. The PEO client keeps control of all business decisions and operations and the co-employer PEO handles employee-related aspects. In fact, according to Legal.com’s definition, “Under the co-employment arrangement, the employees of the company come under the PEO’s control for personnel-related matters but remain under the business’s control for operational matters.”

Business owners that enter into a co-employment relationship with a PEO shift a big portion of the responsibilities (and let’s not forget, risk) associated with managing employees to the co-employer (PEO). Most co-employment agreements allow business owners to maintain control over staffing and business decisions. That’s because a co-employment relationship is administrative- and services-oriented, and doesn’t involve “handing over” staff to the PEO.

Overall, co-employment is designed to allow the PEO to align with existing HR departments to provide expertise and administrative assistance.

We hope this gives some clarity into co-employment. As always, contact Optimum for any questions, or leave a comment!