A very good question arises once the topic of professional employer organizations (PEOs) is brought up in conversation.
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And that query relates to who the employer is when a company (client) decides to work with a professional employer organization to hire staff more effectively.
Well, here’s your answer.
Professional employer organizations are the employers in a co-employment relationship with client businesses, as these firms source and offer employment contracts to workers.
Although professional employer organizations are the employer of record for tax and legal compliance, client businesses still maintain full authority and control of their workforce.
Now, there are many pros involved with partnering with professional employer organizations.
But for the most part, business entities turn to professional employer organizations to help them with their human resource functions, by giving them room to focus on the core aspects of their business operations.
Contrary to popular belief however, client businesses don’t lose their employment decisions or directional control.
They still give the employees their day-to-day responsibilities.
But the employee liability remains with the professional employer organization.
Here’s everything you need to know about the employment relationship between professional employer organizations and client organizations.
How does the employment relationship between PEOs and businesses work?
The professional employer organization gets into a co-employment relationship with the client business.
As a result, these two entities share specific employment responsibilities.
On the one hand, the professional employer organization handles:
- employee payroll;
- taxes;
- workers compensation;
- employee benefits;
- and human resources guidance.
In doing so, professional employer organizations free up time and resources for businesses to focus on their core operations, such as providing products and services to customers and making decisions about which employee to hire or fire.
What a PEO doesn’t do in a joint employment relationship
Although a professional employer organization may handle most human resource functions, this doesn’t mean that you’ll lose control of your organization.
For starters, professional employer organizations are not involved with your business’s overall decision-making and directional control.
You still maintain authority over your organization, including the day-to-day employee responsibilities, as well as other aspects such as who to hire and who to fire.
Additionally, professional employer organizations will not make decisions involving your business unless you seek consultation from them.
They will also not help with marketing, product distribution, overall sales, or do things like dictate pay rates, schedules, or work hours.
Who is liable in legal cases involving employees?
The professional employer organization is liable for legal cases involving employees listed in their contracts and databases.
They take on all the legal responsibilities that involving employees in their day-to-day operations with the business.
For instance, it’s normal for women to get pregnant during their working days.
If a pregnant woman is fired on such grounds, she might sue for discrimination.
In such a case, the professional employer organization is the liable party.
Another one of the main reasons small and medium-sized companies seek help from professional employer organizations are the burdens of high staff volatility, employee healthcare costs, and employee liability.
It’s also important to note that the client organization can still fire employees.
This is because they still have a huge influence on employment decisions and directional control over their companies.
However, client organizations need to notify the responsible professional employee organization to ensure that everything, including onboarding and offboarding, is done in compliance and is legal.
Will I become a co-employer of other companies’ employees?
The short answer to this question is – no.
But why is this the case, you ask?
Well, if you enter into a co-employment relationship with a professional employer organization, it is exclusive to your engagement.
No contractual relationship will ever be created between you and all of a professional employer organization’s clients.
As a result, you’ll be responsible for your employees alone and not any other employees of the professional employer organization firm that you are partnering with.
Wrap up
To summarize the article, professional employer organizations take the role of the employer in the co-employment arrangement / relationship with a client.
What this means is that they take charge of the hiring process on the client’s behalf.
Although the client still retains full authority and control over their workforce, as the client still needs to be consulted before any workforce decisions are made by the professional employer organization.
