4 Ways to Mitigate Co-Employment Risks to Protect Your Business’s Reputation

Filip Dimkovski - TBR writer
By Filip Dimkovski
Nevena Radulović - Trusted Brand Reviews Editor
Edited by Nevena Radulović

Published December 22, 2022.

Close-up of businessmen shaking hands next to an open laptop

Complex business arrangements sometimes require intricate legal and administrative contracts, which is why co-employment might be needed. This is a business arrangement between an organization and a professional employment organization (PEO), where both entities share the legal responsibilities of an employee, have some degree of an employer-employee relationship with the worker(s), and will have to take on certain obligations. Of course, both employers should have clearly defined roles and responsibilities.

Nevertheless, issues related to co-employment happen more frequently than business owners would like, potentially causing log-term reputational damage and even a PR crisis. Luckily, there are some measures business owners can take to mitigate and manage the potential risks of co-employment. In this article, we'll look at four ways to protect your organization’s reputation in a co-employment arrangement.

» Considering a co-employment agreement with a PEO? See the 3 PEO types

Strategies for Preventing Co-Employment Risks

Before we dive in, it's worth mentioning there are some common misconceptions about co-employment. Business owners often believe co-employment will cause problems related to payroll, replace the HR department, or even cause employee dissatisfaction in their organization. However, having the right co-employment strategies and considerations in place will protect you from such risks.

So, to avoid putting your company's reputation at risk, consider the following suggestions:

1. Ensure Regulatory Compliance With Employment Laws

The potential risks of not complying with labor laws are too big to ignore, as non-compliance can have massive legal, reputational, and financial consequences. That's why it's important for both organizations involved in the co-employment arrangement to be up-to-date with all the latest employment regulations & labor laws and make sure any agreements are compliant with them.

This also means that both companies understand their respective roles and responsibilities in the arrangement, and all parties are aware of their rights & obligations. Remaining compliant with the relevant laws & regulations is the easiest way to keep your business' reputation intact.

» Maintain your reputation by avoiding payroll compliance penalties

2. Verify Proper Classification of Independent Contractors

Although a co-employment arrangement is almost always used for full-time employees, independent contractors can also come into the picture and cause some confusion. It's important to remember that properly classified independent contractors are never a part of a co-employment arrangement, as they act as "independent businesses" themselves. This means they alone are responsible for all the taxes they pay and how the payroll is processed on their side. Your business won't be held liable for any payroll-related issues, as long as the contractor/freelancer is properly classified.

Thus, it's important to avoid the misclassification of employees at all costs, as it can have legal & PR consequences for both parties. By being thorough and verifying all documentation when hiring, you can protect your business's reputation in the long term.

3. Avoid Treating Independent Contractors like Employees

Even if the independent contractor is classified correctly, it can be easy to overlook this and start treating them like a regular employee. This should be avoided, as the distinction should remain clear throughout the entire co-employment arrangement. If independent contractors are treated any differently than their contract requires, it gives them legal grounds to file a complaint or lawsuit.

You can avoid a hefty lawsuit or an unwelcome visit from institutional representatives by simply abiding by federal, state, and local government laws. Make sure to keep independent contractors' rights in mind and make the distinction from full-time employees clearly visible in all aspects, from employee benefits and compensation to workers' compensation to their specific responsibilities.

» Managing workers' compensation: see what injuries aren't covered

4. Partner With an Experienced Agency

Sometimes, business owners have to delegate some of their responsibilities to ensure peace of mind, which is where reputable agencies come in. Outsourcing tasks to the right agency will help you manage and mitigate co-employment risks, as they have all the experience and resources to do so.

However, it's important to avoid agencies that are potentially non-compliant with employment laws and regulations, as they can cause much more harm than good. In some cases, your business might be held liable for the mistakes they've made, causing a permanent stain on your reputation in addition to massive legal consequences. On the other hand, a trustworthy agency will help you manage the entire co-employment process seamlessly.

Avoid Co-Employment Risks to Protect Your Business

Co-employment can be a great way to gain access to a talent pool without the full employer commitment, but if not managed correctly, your business might face severe consequences. That's why it's important to remain mindful of all the co-employment risks and take the necessary steps we've mentioned above to protect your business from all legal, reputational, and financial implications.

It's also worth mentioning that businesses in a co-employment arrangement almost always benefit from using payroll software equipped with the right features, as these solutions help businesses remain compliant and avoid many of the risks we mentioned above while saving a lot of time and resources in the long run.

» Want to remain compliant in co-employment? Read TBR's payroll software reviews and find the right solution to protect your business' reputation.

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