The Advantages of Co-Employment Partnerships
By Chris PetersonFirst published Updated
The short answer
Co-employment lets a small business share the employer role with a PEO, which then handles payroll, payroll taxes, benefits and workers' comp claims and brings HR expertise. The business keeps control of its operations and people, and gets the kind of benefits and HR support larger companies have.
Your workforce is one of your most valuable assets, and as with any valuable investment, it pays to protect it. Small and mid-sized businesses often struggle to compete for great employees with larger companies that can pay more, offer better benefits, and afford people to handle insurance, taxes, payroll, compliance and HR policy. Those investments give big companies more time for growth.
If you're struggling to keep up with that side of the business, a partnership with a professional employer organization (PEO) is worth a look. As your partner, the PEO handles HR so you can put your energy into building the business.
In NAPEO's 2024 study (the PEO industry association sponsored it; the economists at McBassi & Company used data from January 2023 to January 2024), PEO clients grew 4.3% a year against about 1.9% for similar companies, had 12% lower employee turnover, and were 50% less likely to go out of business.
How does a PEO partnership help a small business?
Better HR practices
An experienced PEO gives professional HR guidance, trains employees, writes and helps put in place employee handbooks, and offers safety and risk management services. It helps you onboard good people and improves communication with employees.
Broader employee benefits
By pooling many businesses' employees, a PEO can offer insurance options closer to what large companies provide. When employees have strong health benefits, job satisfaction and productivity tend to follow. As a co-employer, a PEO can also add 401(k) options, life insurance, disability insurance and employee assistance programs.
Personnel processes handled
Your PEO becomes the employer of record for tax and insurance purposes while you keep control of operations and your worksite employees. The PEO takes care of payroll, unemployment claims and workers' comp claims. Unless the PEO is IRS-certified (a CPEO), your business generally stays responsible for its federal employment taxes (IRS, 2026), so it's worth asking.
What does the business keep?
Control of the business: who you hire, how the work gets done, the worksite and its safety. A good co-employment relationship improves HR practices, keeps employees engaged and helps you stay on the right side of labor laws. Your employees are happier and stay longer, and you spend your time on growth.