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What is Co-Employment and What Does It Mean for PEO Clients?


The last several years have seen a significant increase in the number of small businesses choosing to outsource their HR needs. One solution in particular – professional employer organizations (PEO) – are also growing at an impressive rate.

And with PEO expected to become even more popular in the coming years, it’s important for brokers and small and medium-sized business (SMB) owners to know more about them.

One thing that can cause confusion for SMBs and brokers when it comes to PEO involves the arrangement that takes place between a client’s employees and the PEO – called co-employment.

Let’s take a closer look at the co-employment relationship, what it means for current and potential PEO clients, and what brokers and SMB owners should know.


NAPEO defines co-employment as “the contractual allocation and sharing of certain employer responsibilities between the PEO and the client.”

When a client decides to partner with a PEO, a co-employment relationship is established between the PEO and client.

This means that the client’s employees are employed by two entities – the client company (worksite employer) and the PEO (which becomes the employer of record).

With co-employment, the PEO assumes various HR related tasks and responsibilities, which can include:

  • Issuing Form W-2 for compensation under the PEO’s Employer Identification Number
  • Remitting wages and withholdings of the clients’ workers
  • Reporting, collecting, and depositing employment taxes with local, state, and federal authorities
  • Managing the client’s payroll
  • Workers’ compensation insurance
  • Assisting with risk management and HR compliance
  • Supplying and coordinating employee benefit plans

It’s important to note that each PEO-client relationship is unique, and services provided can differ based on roles and responsibilities agreed upon by each party.


As mentioned in the previous section, co-employment means that a client’s employees will have two employers.

However, it’s important to know that co-employment doesn’t mean that a PEO will provide workers to their clients. This type of arrangement is called employee-leasing, and differs a lot from co-employment. 

You can download our eBook Co-Employment vs. Employee Leasing: The Differences Brokers (And Clients) Should Know to learn even more about them and just how different they really are.

This means that, when entering into a PEO relationship, clients retain all of their current workforce, and keep full-control over all future employee decisions such as recruiting, firing, promotions, raises, and more.

The client just has to notify their PEO of any personnel changes so that all documentation and HR administrative tasks can be updated accordingly to maintain compliance.


HR today is far more complex, challenging, and time-consuming than ever before, and can be difficult for smaller employers and their owners to properly execute.

Given the importance of HR and compliance, though, it’s not something that can be ignored or handled without the necessary amount of time and input.

Working with a PEO enables clients to no longer worry about the burdens of HR administration, as these tasks are managed by the PEO.

Additionally, as employee benefits (particularly health insurance) become harder for smaller employers to offer competitively, working with a PEO gives smaller employers access to the same quality and quantity of benefits as Fortune-500 companies.

Not only does this help to improve employee happiness, engagement, and retention, but it also significantly improves recruiting efforts in a competitive job candidate market.

By partnering with a PEO and establishing a co-employment relationship, small business owners free themselves to focus solely on high value activities and on the missions of the organization, all while improving the benefits and HR experience offered to their workforce.

And believe it or not, working with a PEO can result in lower HR administration costs, sometimes as much as 35% less!


Exploring an HR outsourcing solution like a PEO can help SMB owners overcome their HR challenges, and achieve the business success that a company and its employees are capable of.

You can learn even more about Co-Employment in our eBook by clicking the link earlier in this article, or by clicking the image below.

Additionally, you can also download our How Well Do You Know PEO eBook, which contains a lot of helpful and educational information about PEOs.

Perhaps a PEO could be the perfect partnership opportunity for your brokerage or business!

What’s the difference between co-employment and employee leasing? Check out our eBook, Co-Employment vs. Employee Leasing: The Differences Brokers (and Clients) Should Know, to learn more about how different they really are!

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