What is Co-Employment?
Co-employment is a legal arrangement where two employers share responsibility for the same employee. In the US, this is the legal basis for Professional Employer Organizations (PEOs). One employer handles day-to-day direction; the other handles payroll, benefits, and compliance.
In more detail
Under co-employment, each employer has specific responsibilities defined by contract. The worksite employer (the client) controls assignments, performance, termination for cause, and day-to-day direction. The administrative employer (the PEO) is responsible for payroll, tax withholding, benefits administration, workers compensation, and HR compliance. Both parties can be held jointly liable for certain employment issues such as discrimination or wage violations, which is why PEO selection and contract clarity matter.
Co-employment is distinct from joint employment (where two related employers share a worker, e.g., franchises) and from sole employment under an EOR (where only one employer, typically a foreign entity, holds the employment relationship).
How co-employment responsibilities split
- Client (worksite employer): hiring decisions, daily supervision, performance, promotions, terminations.
- PEO (administrative employer): payroll, benefits, workers comp, HR compliance, statutory filings.
- Shared: liability for discrimination, harassment, and wage-hour compliance.
- Contractual: a Client Service Agreement (CSA) defines the exact split.
Related terms
Common follow-up questions
Yes, though some states (Florida, Texas, New York) have specific PEO licensing requirements. The IRS certifies PEOs at the federal level under IRC section 7705.
Yes, in certain areas. Both parties can be liable for wage-hour violations, discrimination, or harassment, so clients should vet PEOs carefully.
No. An EOR is the sole legal employer. Co-employment means two employers share the relationship. EORs are used internationally; co-employment (PEO) is a US concept.