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When you place your contract workers with a client company, your client can count on obtaining top talent from your contract staffing pool. And, your client can breathe a sigh of relief knowing they don’t need to handle the legal responsibilities that come with being an employer, since you or your back office partner is the employer of record. However, not understanding co-employment can land you and your clients in hot water.

Learn what co-employment is as well as co-employment laws and risks.  

What is co-employment?

Co-employment is what occurs when two or more parties share legal employer responsibilities of an employee. A co-employer typically takes over their client’s administrative and employment tasks.

Companies hire staffing agencies to place qualified and reputable temporary workers. And, a contract situation reduces the client’s employer responsibilities, like running payroll. General employment guidelines put the staffing company in charge of most or all legal responsibilities, saving the client time.

In some cases, a client might decide to hire the contract worker full-time. When a contractor to employee conversion happens, the staffing company is no longer the employer of the employee.

Co-employment risk

If you, your clients, and contract workers don’t understand co-employment, issues could come up.

When you place a contract worker, depending on the legal arrangements, you and your client might assume joint control and responsibility of the employee. That means you could both become categorized as joint employers of the contract worker and take on joint employment liability. Employment law violations fall on both you and your client if you do not have legal documents and procedures in place that explicitly define you as the employer.

Regardless of what the document says, if you and your client don’t follow it, you could both get in trouble. Your client shouldn’t try to take on some of your employer responsibilities. Violating the legal document indicating employer responsibilities will get both of you in trouble.

So, why should you be worried about co-employment risk? If the IRS or Department of Labor views you and your client as joint employers, you will both get in trouble if problems come up. Common problems can include failing to withhold taxes correctly or not paying overtime wages to the contract worker.

If you and your client are viewed as joint employers of one employee, you could even be viewed as joint employees of all the client’s employees. This means you are both responsible for all of your client’s employees, even if you have nothing to do with them.

Your client probably expects everything to go off without a hitch. They don’t want to be pulled into a conflict when they use your services. This could hurt your reputation, and jeopardize future relationships with clients.

Risk mitigation

To protect your reputation and your client, you need to avoid co-employment issues. There are a number of things you need to do:

  • Work with a lawyer to draft up and review contracts
  • Detail your employer responsibilities in contract staffing agreements
  • Require contract workers to sign contracts signifying they understand you are their employer
  • Exclude contract workers from your client’s benefit plans
  • Exert control over employer tasks and prevent clients from overstepping their bounds

Instead of taking all these steps, you might decide to hire a back office for staffing companies to avoid co-employment problems.

Co-employment: Who does what?

To avoid co-employment issues, you need to take on the role of the contract worker’s employer of record. This means you should be responsible for the following:

As the employer, you are responsible for hiring, firing, on-boarding, and distributing and filing paperwork for contract workers.

You should be solely responsible for running payroll. Before paying contract employees, you must withhold taxes and other deductions from their wages. And, you need to contribute the employer portion of taxes. Then, you must file tax forms and remit withheld taxes to the IRS and other government agencies.

Offering benefits, like health insurance, retirement plans, etc., is also the responsibility of the contract worker’s employer.

You will also need to deal with required employer insurances, like unemployment and workers’ compensation insurance. And, it’s your job to purchase other types of insurance, like general liability insurance.

Follow federal, state, and local laws, including minimum wage and overtime laws, Title VII of the Civil Rights Act of 1964, the Equal Pay Act, and the Americans with Disabilities Act of 1990, to name a few.

Your client comes up with tasks for the contract worker. It is helpful if the client reports how the contract staffing worker is doing on those tasks as well as areas the worker can improve in. It is your responsibility to relay any evaluations you receive to your contract workers.

Is Co-Employment allowed outside the USA?

The truth is that co-employment is still some what of a grey area. However, this type of employment relationship has only been legally recognized and approved in the USA. In Canada and other countries around the world it is not legally for two entities to co-employ a worker. You may see many organizations marketing “International PEO” services, but that is just a marketing tactic. The key component to a PEO is that they offer co-employment. So organizations marketing “international PEO services” are truly just EORs trying to get the attention of buyers looking for PEOs.

Better safe than sorry: Avoiding problems altogether

Because problems with being viewed as joint employers are becoming more prevalent, some companies might be hesitant to use your services. It is your responsibility to ensure that your clients will not be dragged into a joint employment situation. And, it is your responsibility to prevent joint employment problems from coming up.

One way to be sure your co-employment relationship isn’t viewed as a joint employer relationship is to prevent the problem entirely. You can hand over full control to a back-office provider, like FoxHire. The back-office provider then acts as the employer so neither you or your client are viewed as joint employers.

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