What Is Co-Employment?

You may have heard the term “co-employment” in various recruiting or hiring circles, but perhaps you’ve never really understood what it means. There is quite a bit of confusion regarding this term, and as a result, there are many people who are fearful of co-employment and unwilling to explore it as a valid option for hiring talent. But that shouldn’t be the case. Understanding what it is, how it works, and what the benefits are will help you make educated decisions about whether or not it’s a valid option for your firm.

Let’s explore some of the details about this type of employment. This will help to dispel some of the misconceptions.

What Is It?

Co-employment is a type of employment where an employee has two managers. One manager would be in the workplace, directing the employee’s tasks, workflow, and the day-to-day functions of his or her job. The other manager would belong to a wholly separate organization from the first manager’s, but they would be responsible for the employee’s compensation, taxes, and/or benefits.

For example, think of an employee who is hired for a firm through a staffing agency. While they are, on the one hand, practically working at the firm (as in, physically executing work there and for that firm’s benefit), they are technicallyemployed by the staffing agency. The latter pays this employee, manages his or her vacation pay, salary, benefits, and any other compensatory aspect of his or heremployment. However, no representative of the staffing agency is present when this employee is doing his or her daily job—the manager at the firm is responsible for this.

How Does It Work?

Each of these two managers has their own set of legal responsibilities for that employee. These two managers must work together to make sure that the employee’s needs are being met. In the example above, the firm manager might erroneously make the assumption that the staffing agency is the employee’s sole responsibility. However, with co-employment, both the firm and the agency are liable for the decisions made by the other. This is really important, because if for any reason the employee takes any kind of legal action, both companies could be held responsible (and maybe have to pay damages).

This can be a very practical option, depending on the hiring situation. For example, when hiring a temporary employee, it might be a good idea to hire him or her on a co-employment basis.

Who Is Involved?

Mainly, co-employment is used for “contingent employees” – such as contractors, temporary hires, consultants, freelancers, and the like.

The other two parties involved are the two types of managers. In the example above, the staffing agency would be the “statutory employer” while the firm would be the “co-employer” or “client company.” Each has their own set of responsibilities: the latter manages the day-to-day work of the employee on the jobsite, while the former manages his or her compensation.

What Are the Potential Risks?

A major risk of co-employment is vicarious liability of one co-employer for the wrongdoings of another. The details of co-employment relationships, including clear lines of dispute resolution, must be clearly delineated to avoid legal red tape. Organizations need not only comply with employment laws, but must also understand liabilities and how to effectively manage their contractors.

When managing risk, it’s important to have a solid understanding of both co-employment and how to work with a firm to best handle issues. Ensure you cover your legal bases, have contractors sign contracts and waivers, and work with a reputable staffing firm.

What Are the Benefits?

The real benefit of using this employment arrangement is that businesses can hire the service of the independent contractor without the additional responsibilities of taking care of that individual’s wages, benefits, or tax responsibilities. This can be really beneficial to organizations that are trying to minimize human resources-related risks, such as misclassification in tax forms. Essentially, they can mine this individual’s talent while not having to spend time and energy on the human resources side of things, which is taken care of by the co-employer.Without having to focus on payroll, tax reporting, workers’ compensation coverage, and claim management, you can get the most out of your employee while minimizing overall risk and responsibility.

We hope that explains how co-employment works and why it may be beneficial in your situation.

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Mike Leacy

Mike Leacy

Michael Leacy is Vice President of IT and Engineering Staffing Services at Ian Martin.He is also President and Board member of the National Association of Canadian Consulting Businesses (NACCB).His experience is enabling organizations to deliver technical/functional expertise for IT and engineering projects. He lives near the lake and can lay out with the best of them in centre field to make the catch.
Mike Leacy