Co-employment frees business owners from administrative tasks so they can concentrate on the actual work of their business.

But what happens when co-employment isn’t enough? Often, business owners find themselves contracting out to a web of service providers. However, that may not be the most sensible option.

What Is Co-Employment?

Running a business requires two main skillsets. One is the skillset that enables you to envision, form and develop a business. The other is the skillset that enables you to successfully administer that business.

That’s where co-employment comes in. In the most basic sense, co-employment is the contracting out of administrative tasks to a service provider.

Of course, it’s a little more complicated than that. A co-employment service provider becomes the company of record for your employees.

As far as the day-to-day goes, your employees still work for you. But from a legal, tax and healthcare standpoint, your employees work for the co-employment provider.

At first it may seem like an odd arrangement, but it has become a fairly common one and gets more common all the time.

According to the National Association of Professional Employer Organizations (NAPEO), co-employment service providers have as many as 3.5 million employees on their rolls from up to 180,000 client companies in the United States.

Why Enter a Co-Employer Relationship?

When a company enters into a co-employment agreement, their employees are no longer a small group of 20 or 50 or 150, whatever the case may be. They become part of a much larger organization that may have tens of thousands of employees on their rolls.

Why is that important? Even if you’re a small company, it enables you to act like a big one as far as your employees go. And large companies have advantages over smaller companies.

A [co-employment provider] is one of the best-kept secrets of many successful small businesses. Essentially, these bodies handle all your HR needs, including payroll and administration, employee health and retirement benefits, workers’ compensation insurance, state and federal compliance issues and even worker training. All you’re left to do is hire, supervise and promote (or fire) your employees as needed.


Instead of a single human resources (HR) manager with an assistant or a handful of HR professionals, you get a whole HR department. You also get the expertise to match.

Instead of buying health insurance and other benefits for 20, 50 or 150 employees, you’re buying them for thousands. You get the benefit of economies of scale, which can be significant—higher quality plans at lower costs.

Small businesses that work with a [co-employment provider] grow 7 to 9 percent faster, have employee turnover that is 10 to 14 percent lower employee turnover, and are 50 percent less likely to go out of business…Administrative costs are around $450 lower per employee…[co-employment providers] are able to offer a broad array of HR services at a lower cost and offer access to retirement plans to small business that may not otherwise sponsor them.


The benefits of the co-employer relationship are many and varied. But perhaps the greatest advantage is that it enables companies to focus on their business.

Trust Multiple Times or Trust Once?

Co-employment handles the administrative side of business, but what if you need more than that?

Most companies can’t afford to hire a new employee or entire department every time they need a new business function. Instead, they look to contractors. However, when you enter into a contracting agreement, you’re entering into a relationship just like any other, which requires trust.

If you need a single function, it’s not a big deal to go out, find a few contractors and pick the one you can trust. But what if you’re looking to add multiple functions? You’re talking about repeating that process—finding contractors you can trust—over and over.

It’s much simpler if you can find a single contractor that can provide all those business services. It’s even simpler if that contractor is already your co-employer.

—Beth Stephenson, Avitus Group Marketing Manager

Beyond Co-Employment

Business owners need to focus on their core job functions to make their businesses work. Co-employment frees them up to do that. Business owners also need to fulfill functions that lie outside their company’s skillset. Contractors help them do that.

However, entering into a contract agreement means entering into a trust relationship. The more contractors you have, the more trust relationships you have. A web of contractors, in that case, may not be the best solution.


By Charlie Smith